Housing bubble biggest risk to economy
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The major risk for China's economy in the second half of this year comes from the housing bubble, and property prices will fall between 15 and 20 percent in the last quarter of this year, according to a report by Credit Suisse.
The report also said controlling inflation will be a major challenge while predicting a 1.5 to 2 percent rise in the value of the yuan against the US dollar in the second half of this year after it was depegged last week.
"The fate of the Chinese economy for the rest of this year depends largely on the housing market," Tao Dong, chief economist of Asia (excluding Japan) at Credit Suisse, said yesterday in Shanghai.
"We expect home sales in China will continue to be stagnant, and prices won't fall until the fourth quarter at a time when many developers will become cash-tight," Tao said.
China launched a string of measures, including increasing the down-payment requirement on second homes and the suspension of credit to buyers of third and more homes, in mid-April to curb speculation and runaway housing prices.
The measures have led to a strong "wait-and-see" sentiment among sellers and buyers, but thus far property prices have not moved down sharply.
"The possible 15 to 20 percent price drop won't cause chaos for the economy," Tao said. "The financial market and its institutions are strong enough to bear the blow."
But the economy growth will moderate, with a slower pace at 9.5 percent in the following quarters from 11.9 percent in the first quarter of this year, he said.
