Economy View: 06/25/11

25/06 China Banks Told to Cut Loans to Property Speculators

Published: Saturday, 25 Jun 2011 | 12:13 AM ET

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By: Reuters

China has reiterated orders to banks to curtail lending to property developers who are speculating on rising house prices to guard against overheating in the frothy sector.

Jerry Driendl | The Image Bank | Getty Images

Apartment buildings in Liaoning Province, China.

Clarifying media reports that regulators have asked banks to reduce lending to developers, a media officer at China Banking Regulatory Commission said loan restrictions should only apply to companies suspected of carrying out speculation.

The Beijing News had reported on Friday that Liao Min, who heads the Shanghai branch of the China Banking Regulatory Commission, had told banks to lend less to real estate developers.

Liao was also quoted as saying that banks should take property projects rather than land as collateral for loans.

When developers use land as collateral, they tend to overstate the values by pledging an entire plot of land instead of the relevant parcel their projects occupy, said Hwabao Trust analyst Nie Wan in Shanghai.

Concerned that record home prices may trigger a housing market bubble and destabilize the economy, China has leaned against the market in the past year.

Beijing has lifted down payments and mortgage rates, limited property purchases, launched a property tax, and restricted credit to the real estate industry. Concern of a pick-up in bad loans has also led banks to cut lending.

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China's inflation rate accelerated to a near three-year high of 5.5 percent in the year to May and is widely expected to quicken further in June and July. Rising house prices are the second-biggest driver of price pressures after surging food costs.

Despite the slew of tightening steps, house prices are still rising, albeit at a slower pace. Annual property inflation eased to its slowest pace this year of 4.2 percent in May, down a whisker from April's 4.3 percent.

Given stubborn prices, Beijing has shown no signs of relaxing its tightening stance. However, industry observers do not expect China to adopt new measures.

TOPICS:Banking | Inflation | Housing | China

25/06 China steps up subsidy help for the needy amid inflation woes

English.news.cn 2011-06-25 16:08:27

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BEIJING, June 25 (Xinhua) -- More than half of all Chinese provincial-level regions have established a mechanism to offer subsidies to the needy as high inflation pushes up their daily living costs.

The National Development and Reform Commission (NDRC), the country's top economic planner, said Friday that 18 provinces, autonomous regions and municipalities had set up the mechanism to give financial support to the needy in both urban and rural areas.

Another six provincial-level regions will implement the mechanism before the end of August, according to an NDRC statement.

The statement said the entire country will be covered by the end of this year.

The scheme mainly covers the disabled, low-income residents and unemployed. In Tianjin, a monthly subsidy of 20 yuan is offered to the needy if the consumer price index (CPI), the main gauge of inflation, rises between 3-5 percent; if the CPI rises between 5-7 percent, the subsidy will rise to 30 yuan.

Most regions will hand out subsidies if the price index surges above 4 percent.

"The mechanism seeks to ensure that the quality of people's lives are not reduced despite the rises in consumer prices," said an official with the NDRC, who spoke on the condition of anonymity.

China's CPI shot up 5.5 percent year-on-year in May, a 34-month high.

The index rose 5 percent in the first quarter and 5.3 percent in April, well above the government's 4-percent target for the whole year.p The NDRC said earlier this week that the country's inflation rate will accelerate this month despite the government's efforts to stem price increases. It estimated that June's overall price levels will be higher than those of May.

Food prices, which account for nearly one third of the basket of goods in the nation's CPI calculation, surged 11.7 percent in May from a year earlier. Higher prices are becoming increasingly difficult to afford, especially for the poor.

Sheng Laiyuan, spokesperson of the National Bureau of Statistics (NBS), said earlier this month that rising food prices were a major cause of the high inflation while a severe drought this spring and floods in south China had also pushed prices up.

Prices of pork, the main kind of meat consumed in the country, have shot up this year. Pork price increased 40.4 percent in May year-on-year. Lean pork price at a supermarket in Beijing was 41.2 yuan (about 6.4 U.S. dollars) per kilo on Saturday.

According to data from the NBS, pork prices continued to rise during June 11-20 from the previous 10 days. Prices were up more than 4.3 percent.

While there are some drops in vegetable prices, price of flour during the period were up 0.4 percent. Prices of live carps and hairtails rose 2.6 percent and 0.6 percent, respectively.

In a written article by Premier Wen Jiabao in the Financial Times newspaper on June 23, he said China has made capping price rises the priority of macroeconomic regulation and that a host of targeted policies, including hiking interest rates and bank's reserve requirement ratio, have worked.

He also expressed his confidence that the overall price level is within a controllable range as the nation's grain output has increased for seven years in a row and there is an oversupply of main industrial products.

Editor: Deng Shasha