Hong Kong should consider tightening lending rules to stop rapid credit growth and asset-price gains from damaging the economy, the IMF said.
“Strong capital inflows and the resultant large liquidity overhang in the financial system could potentially lead to rapid credit growth, fueling asset markets and creating macroeconomic volatility,” the IMF said in a report yesterday. “Countervailing prudential measures could play a role in mitigating the credit-asset price cycle.”
Money spilling into Hong Kong from unprecedented lending under China’s stimulus program and abundant US dollar liquidity has resulted in a 30 percent surge in property prices and a 56 percent jump in the benchmark stock index this year. The IMF said Hong Kong needs to supplement the “circuit breaker” measures already introduced to tame asset prices.
Hong Kong’s Transport and Housing Bureau on Nov. 20 said it planned to tighten rules on marketing of uncompleted apartments, responding to concerns that misleading sales tactics by property developers have contributed to a surge in prices this year.
The proposal follows measures announced by the Hong Kong government on Oct. 23 to raise the required down payment on luxury homes to 40 percent from 30 percent to curb property speculation.
In terms of additional regulatory action, IMF staff said the most effective tool that could be adopted by Hong Kong was a tightening of underwriting standards, including eligibility criteria for mortgage insurance.
The US Federal Reserve’s policy of keeping interest rates near zero is fueling the wave of speculative capital that may cause the next global crisis, Hong Kong Chief Executive Donald Tsang (曾蔭權) said on Nov. 13.
“We have a US dollar carry trade at the moment,” Tsang said. “Where is the money going — it’s where the problem is going to be: Asia. You can see asset prices going up, not only in [South] Korea, in Taiwan, in Singapore and in Hong Kong, going up to levels that are incompatible or inconsistent with the economic fundamentals.”
The IMF said that “as yet” the price increases in Hong Kong’s equity and mass property market “do not appear out of line with regional comparators.”
“Given the high level of liquidity in the system, credit growth has the potential to pick up quickly,” the Washington-based lender said. “Higher credit could drive higher asset valuations which, in turn, could be used as collateral to support greater borrowing.”
Hong Kong’s economic recovery “remains fragile” and exposed to the risk of a weakening of external demand, even as policy makers grapple with asset price inflation, the IMF said.
“The global economic outlook remains subject to considerable uncertainties,” Hong Kong Financial Secretary John Tsang (曾俊華) said yesterday in response to the IMF report.
“We are mindful of the prevailing risks in the external environment and will continue to adopt necessary measures to sustain economic growth,” he said.
The IMF said it expects the Hong Kong economy to “steadily strengthen” and expand 5 percent next year, with unemployment likely to decline in the coming months.
Hong Kong’s economy grew for a second straight quarter in the three months through Sept. 30, expanding 0.4 percent from the previous quarter as consumption and investment gained. The seasonally adjusted jobless rate for the three months to Oct. 31 slid to 5.2 percent.
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