Tuesday, July 6, 2010

China property 'collapsing'

CHINA'S property market is beginning a 'collapse' that will hit the nation's banking system, said Kenneth Rogoff, the Harvard University professor and former chief economist of the International Monetary Fund.

As China's economy develops, 'especially at the speed it's growing, it's going to have bumps,' said Mr Rogoff, speaking in an interview with Bloomberg Television in Hong Kong. He also said that while recoveries across the global economy are 'very slow,' the danger of a return to recession isn't 'elevated.'

Mr Rogoff's concern echoes that of investors, who sent China's benchmark stock index to its worst loss in more than a year last week. China's data have been a focus because the nation has led the global recovery from the worst postwar recession.

Chinese authorities intensified a crackdown on property speculation after announcing the economy expanded at an 11.9 per cent annual pace in the first quarter, the most since 2007. Measures have included raising minimum mortgage rates and down payment ratios for some home purchases. Officials may also start a trial property tax, according to state media.

The efforts have contributed to a slump in real-estate sales, while prices continue to climb. The value of property sales dropped 25 per cent in May from the previous month, said Bloomberg. The increase in prices, at an annual 12.4 per cent in May according to a government survey of 70 cities, was down from a 12.8 per cent advance in April.

'You're starting to see that collapse in property and it's going to hit the banking system,' said Mr Rogoff, 57, who also serves on the Group of 30, a panel of central bankers, finance officials and academics led by former Federal Reserve Chairman Paul Volcker.

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