In spite of rising property prices, China favors growth and is unlikely to ease monetary policy to address rising inflationary pressure before the end of the year, an analyst said yesterday, adding that the resulting capital spillover had benefited regional property markets, including Taiwan’s.
“To hedge the risk of rising inflationary pressure in a low interest rate environment, China will encourage capital to leave its territory and its enterprises to buy up more properties, commodities and natural resources overseas in the next six months,” Chris Leung (梁兆基), a senior economist at DBS Bank Ltd’s (星展銀行) Hong Kong branch, told a press conference.
Property prices in Hong Kong, Singapore, Shenzhen and Guangzhou have risen between 20 percent and 30 percent since their lows last fall, he said, adding that the trend would likely continue if China kept attracting capital inflow and investment.
Leung said Chinese banks would continue to pump liquidity into the market by granting new loans. The loans would likely total 10 trillion yuan (US$1.46 trillion), or one third of China’s GDP, in the second half of the year, up from 7 trillion yuan, or 25 percent of GDP, in the first half, he said.
Investment remains an important driver of China’s economy, Leung said, adding that China wouldn’t see a full recovery in exports until the second half of this year unless the end markets in the US and Europe fully recovered.
Domestic demand accounts for only 35 percent of China’s GDP, which is insufficient to prop up its economy, he said.
Ample liquidity and a protracted low-interest environment will increase inflationary pressure and the risk of bad loans, but Chinese authorities will not address this until next year, once the economy has shown solid signs of improvement, Leung said.
Meanwhile, DBS Bank plans to open two to three branches in Taiwan over the next three years and could acquire smaller rivals, DBS Taiwan head Jerry Chen (陳亮丞) said yesterday. The bank expects to turn a profit in Taiwan by the end of this year, he said.
DBS forecast Taiwan’s economy would rebound next year, with 3.7 percent growth compared with this year’s 4.9 percent contraction, while China’s GDP would grow 7.5 percent this year and 8 percent next year.
It said Taiwan’s consumer price index (CPI) would fall 0.4 percent this year and climb 0.9 percent next year, and China’s would remain flat this year and climb 2.5 percent next year.