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IMF says property bubble in China a concern

21 July 2011 No Comment

THE INTERNATIONAL Monetary Fund said on Wednesday it remains concerned with the potential for a property price bubble in China even though the country’s elevated inflation rate may peak within the next month or two.

While efforts by China to cool the real estate sector have reduced transaction volumes and property price increases, prices in some larger cities still look ‘bubbly’, Nigel Chalk, IMF mission chief to China, told reporters while discussing the IMF’s annual health check of the Chinese economy.

‘As long as the cost of financing is low and other investment options are sparse, the propensity for property bubbles will remain and the government will have to take progressively tighter administrative measures to stem demand and dampen house price inflation,’ the IMF review said.

Mr Chalk said China could address the risk of recurring property price bubbles by raising the cost of capital, introducing property taxes and developing alternate household savings vehicles.

While inflation, which has become a pressing social and economic issue in China, was set to ease in coming months, unpredictable shocks from higher food and commodity prices were a risk that could push inflation higher again, the fund said.

Some part of current inflation was likely being suppressed by administrative measures, it cautioned, adding: ‘This may stifle the appropriate supply response to higher prices and could lead to the inflationary dynamic showing more inertia and persistence during this cycle.’

He said Chinese officials had raised during discussions the issue of high public debt in the United States, Britain and elsewhere as a risk that could impact Chinese policies going forward.

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