"Can China deflate its real estate bubble without generating a hard landing in its economy? It's a serious problem. The Chinese themselves are quite worried about it," said Nariman Behravesh, an analyst at IHS Global Insight.

"If you look at the ratio of home values relative to GDP, China is about the same level as Japan's before Japan's bubble burst," he warned.

Fueled by rapid economic growth and urbanisation, China's property prices last year defied cooling measures, climbing four straight months to December.

The Chinese Academy of Social Sciences, a government think-tank, warned in December that of 35 major cities surveyed, property prices in eleven, including Beijing and Shanghai, were overvalued by between 30 and 50 percent.

On Friday, authorities launched a property tax on two of the country's biggest cities -- Shanghai and Chongqing. Those who buy high-end second homes in those cities must now pay a 0.4 to 1.2 percent annual tax.

Earlier in the week, the government hiked the minimum downpayment for second homes to 60 percent from 50 percent.

Down-payments for first homes have to reach at least 30 percent, and banks have been ordered not to provide loans for third or later homes.

Zhang Xin, who founded Beijing's biggest property group Soho China Limited, said housing "has somehow become a very political issue" in the Asian giant.

"This industry somehow manifests the two most important social elements in China. One is the income disparity between the rich and the poor, the other is corruption," she told a panel at the World Economic Forum.

"When somebody has money and they go to buy expensive houses, then asset prices go up. This is a sword in the eyes of the less well-to-do people, so it has created a public outcry," she said.

Government corruption has also been linked to property development, and stories abound of peasants forced off their land by crooked developers.

"The government is likely to continue the austerity measures, but the question is if these are effective," Zhang said.

"In my own view the market economy has grown to the stage that it's very strong and sizeable, that is much stronger than government thinks, and that's why these measures have not been the most effective and I think next year will be the next year to watch," she said.

Israeli top central banker Stanley Fischer also noted in a discussion at the Davos meeting that "there are lots of reasons in the housing market to think that China is overheating."

However, he was more confident that policymakers would be able to rein in the problem.

"Every year you come to Davos, there is a cause for it to be about to blow up. But you have a group of very smart policymakers there.

"I suspect they will take measures to cool down the economy, perhaps they will grow at nine percent instead of 10 percent," he said.

Kishore Mahbubani, a pundit on Asia, also voiced faith in Chinese authorities to get a grip on the situation.

"I definitely think they will have to do something about housing prices, but you can control the bubble. I think the Chinese government is trying to do that," said Mahbubani, dean of Singapore's Lee Kuan Yew School of Public Policy.

"There will always be challenges, it's not normal for societies to keep growing. They will stumble," he said.

"The key is the capacity of the Chinese government to recover from this crisis. The capacity for them to do so is really at an all time high and when the capacity to recover is so strong, they can ride through a few crises too," added the dean.

earlier related report
ICBC leads charge as Chinese banks go global
Beijing (AFP) Jan 30, 2011 - ICBC, the world's largest bank by market value, is proving the most aggressive Chinese bank in expanding abroad, serving Chinese firms that are increasingly active globally after the financial crisis.

Of the country's "big four" banks, ICBC is leading the way as Chinese lenders restart plans that were put on hold by the global crisis and seize new opportunities left in its wake.

Bank of China fulfilled that role in the 1980s, but times have changed as Chinese firms have been widely encouraged to invest abroad and Beijing seeks to boost the global profile of the yuan, the experts say.

"BoC and ICBC are roughly at parity in terms of overseas activity. But it does indeed appear that ICBC is emerging as the most international of the Chinese banks," IHS Global Insight analyst Adam Breen told AFP.

For Andy Xie, an independent economist based in Shanghai, the process is the logical result of the global expansion by Chinese companies, which are branching out to secure vital natural resources and explore new markets.

"Even Chinese companies of medium size are going global. If Chinese banks don't offer them services offshore, then they might switch to other banks like HSBC that have both a China presence and an international presence," Xie said.

This month alone, ICBC opened branches in Paris, Amsterdam, Madrid, Milan and Brussels -- following on from existing offices in London, Moscow, Frankfurt and Luxembourg.

In December, it extended its reach to Pakistan. The month before, reports said ICBC was eyeing a takeover of South Korea's Kwangju Bank. It already has two branches in Seoul and one in the port city of Busan.

In addition the bank took advantage of this month's high-profile visit to the United States by President Hu Jintao to announce it had signed a $140 million deal to buy a majority stake in the US subsidiary of Bank of East Asia.

If the agreement gets approval from US banking regulators, ICBC will become the first Beijing-controlled financial institution to acquire retail bank branches in the United States.

ICBC, which employs 386,000 people worldwide and has more than 200 million customers, now has more than 160 branches outside mainland China and more than 16,000 in the country, according to its website.

Experts say Chinese banks' global expansion is only just beginning.

"It is rapid expansion only from a very low base," explained Michael Pettis, a professor of finance at Tsinghua University in Beijing.

"China is the second-largest economy in the world but in terms of outward direct investment, it is probably eighth or ninth."

At first, the banks will serve Chinese companies looking to invest in or buy local businesses, before they target foreign enterprises doing business with the Asian economic powerhouse, experts say.

Eventually, they will be viable competitors to local banks, mainly by offering more cost-effective service, Pettis told AFP.

"The Chinese banks might become competitive in a few years, and they will probably be competitive where the Japanese were competitive in the 1980s and that is because they provide low funding cost," he said.

ICBC chairman Jiang Jianqing told the Wall Street Journal at last week's World Economic Forum that the bank's focus for now would be "mainly on emerging markets, which have good prospects for growth".

"For the American market, we are walking in a very careful way," Jiang said.

Breen, a specialist on China's banking sector, said the "big four" should focus on developing economies, "where competition is lower, economic growth potential is greater, and the existing domestic banks are less sophisticated".

In developed countries, "their best option is to purchase existing banks in those sectors if they want to expand there," Breen said.

But he cautioned that "major regulatory obstacles" could block Chinese banks' path in nations such as the United States, where most analysts expect ICBC to face a lengthy process to win approval for the Bank of East Asia deal.

del.icio.us	Digg	Reddit
YahooMyWeb	Google	Facebook

Memory Foam Mattress Review

SPACE MEDIA NETWORK PROMOTIONS Solar Energy Solutions Tempur-Pedic Mattress Comparison ... Newsletters :: SpaceDaily :: SpaceWar :: TerraDaily :: Energy Daily XML Feeds :: Space News :: Earth News :: War News :: Solar Energy News