Real estate bubble 'threat to economy'
Shanghai's property bubble has become a risk for the mainland's economy, which will see faster growth due to an easing of controls on industrial investment, an analyst warned yesterday.
Dong Tao, Credit Suisse First Boston's chief regional economist, said the Shanghai government needed to introduce more measures to cool the increasingly volatile property market, fuelled by money pouring in from domestic and foreign sources.
'Residential property prices have moved up at a pace of 5 to 10 per cent per month over the past few months,' Mr Tao said. 'Property developers in Shanghai argue that they really have the demand.'
He said the demand was no longer being driven by Shanghai residents but by speculators.
'People may say this bubble is different from other bubbles. But at the end of the day, when property prices go down, people will realise a bubble is a bubble.'
He warned that any collapse of the city's property market, a driving force behind the mainland's fast economic expansion, could seriously affect the nation's gross domestic product.
'The property market directly contributed 13 per cent of Shanghai's growth last year and an additional 6.5 per cent indirectly through materials, furniture and other services,' Mr Tao said. 'Shanghai accounts for 5.5 per cent of China's GDP, but the actual impact on the national economy could be substantially bigger.'
He said Beijing was unlikely to 'hit the brakes' on economic growth in the next six months, despite maintaining a tough tone.
Mr Tao predicted that further tightening measures would be more likely to be introduced next year, as inflation rebounded.
However, Mr Tao warned that a delay in tightening, due to a lack of political will in Beijing to rein in investment and growth momentum, would mean greater risks of a sharper slowdown for 2006.
