Tougher policies for real estate development
China's fixed asset investment grew 22.8 per cent year-on-year during the first quarter of this year, a significant decline of 20.2 percentage points compared with the same period a year ago.
However, economists believe the total size of the investment, including real estate, was still too large.
Zhou Jingtong, a senior economist with the State Information Centre, said fixed asset investment has the possibility to go up even more.
Fuelled largely by fast investment, China's economy in the first quarter grew 9.5 per cent year-on-year.
"The government will not relax its macro-control measures adopted in the second half of last year," Zhou said.
Since mid-2003, China has taken a series of measures to cool investment. These include setting more restrictive lending limits on banks, banning some new projects in the real estate sector, and making it tougher to win approval to convert land for industrial use.
Last October, the People's Bank of China, the central bank, raised interest rates for the first time in nine years, increasing the benchmark lending rate by 0.27 percentage points to 5.58 per cent.
"If the government wants to keep economic growth at 8 to 9 per cent - a healthy rate agreed by many economists - this year, it needs to take new macro-control measures, including a further rise in interest rates, to rein in the investment," said Zhuang Jian, a senior economist with the Asian Development Bank.
"There is room for the central bank to raise interest rates further," he said.
Currently, the interest rate for savings is still not that high, he said. The country's consumer price index (CPI), a key inflation measurement, rose 2.8 per cent year-on-year during the first quarter of this year.
"Although the CPI is not so high, the inflationary pressures are still there," he said.
Gains in producer prices, which outstripped rises in consumer prices, could push the CPI higher, Zhuang said.
The producer price index rose 5.6 per cent year-on-year during the first quarter of this year.
"Increasing labour costs and the local government's desire to raise prices of public products such as water and electricity will also add pressure to the CPI," he said.
The government will consider both inflation and investment situations when it makes decisions on rate hikes, he said.
More curbs needed
For red-hot sectors such as real estate, the government can take other measures, including tax policies, to regulate its development, he said.
The National Bureau of Statistics said China's real estate investment grew 26.7 per cent year-on-year during the first quarter of this year.
Along with fast investment growth, housing prices also rose rapidly, due partly to speculative purchasing.
Earlier figures from the National Development and Reform Commission indicate that housing prices for the country's 35 major cities grew 9.8 per cent year-on-year during the first quarter of this year.
House prices in cities such as Shanghai and Hangzhou rose more than 10 per cent during the same period.
It seemed that the government's macro-control measures, which had an impact on housing supply and demand, were not so effective in curbing soaring prices, said Tang Min, chief economist of the Asian Development Bank's resident mission in China.
With the aim of curbing the fast price rises, the government could impose heavy taxes on those who frequently buy and sell homes in the short term, he said.
Vice-Minister of Finance Xiao Jie said last month that the majority of China's real estate-related taxes and fees are collected during the period of development and investment.
Taxes and fees during transactions and the time when the houses are used were relatively low, he said.
The government is considering imposing a unified real estate tax to counteract this, he said.
Senior economist Peng Longyun of the Asian Development Bank said the unified tax, although not aimed at merely curbing speculative buying - one of the reasons for the present high prices - could help regulate the market and lower prices.
Liao Yingmin, a senior researcher with the State Council's Development Research Centre, said China's housing prices will become stable this year because the supply and demand situation will improve.
But the strong demand will continue to keep prices at a higher level, she said.
China's housing industry has already become a new growth area in the country's economic development.
The strong demand for housing, backed by increasing incomes, will last for decades, Liao said.
(China Daily 04/22/2005 page2)