Categories:Investments

China “still has a propensity for property bubbles”

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China should adopt a “more balanced” approach to monetary policy in its bid to control inflation and stabilise its economy, the International Monetary Fund (IMF) has said, warning the country “still has a propensity for property bubbles”.

In its annual review of the Chinese economy, the lender says the government’s efforts to tighten monetary policy, normalise credit growth and withdraw fiscal stimulus have been “fully appropriate”.

However, it adds: “A more balanced use of monetary policy tools, including more reliance on interest rates and less use of direct administrative limits on loan growth, would help achieve the intended policy objectives more effectively.”

The IMF’s research also says China’s inflation is expected to peak in the short term and predicts that it will decline to about 4% by the end of the year.

The report is less positive about price rises in the country’s property prices. It says that efforts to slow down property price growth appear to be working but warns the country “still has a propensity for property bubbles”.

In addition, the review makes a series of recommendations for the Chinese financial sector.

Successful reform of the industry would require stronger monetary policy, better regulation, further development of financial markets and moves to make the renminbi a fully convertible currency, the IMF concludes.

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