Beijing weighs market risks of Fed ending stimulus

Researchers acting for the State Council, the central government's cabinet, are working on a report into the risks to Hong Kong and the mainland from any withdrawal of the US Federal Reserve's unconventional monetary stimulus, or quantitative easing (QE) programme.

Sources with direct knowledge of the project told the South China Morning Post that the Development Research Centre has been compiling the report as global markets have been roiled by the risk of the withdrawal of liquidity injections that the Fed has signalled could begin as early as this month if US economic conditions show enough improvement.

"The report will assess the risks to Chinese financial markets, property companies and banks. It will also look at the risks to Hong Kong markets," said one source.

The super-easy monetary policies led by the Fed, the Bank of England, the European Central Bank, the Bank of Japan and others in the wake of the 2008-09 global financial crisis have been largely responsible for a surge in the value of commodities and emerging market asset prices.

Investors have chased the prices of real and financial assets higher as risk-free interest rates at the world's major central banks have hovered close to zero.

QE policies are also widely considered to be behind the flood of so-called "hot money" into China that has driven up real estate and other asset prices, further distorting a cost of capital on the mainland that is already skewed by state-directed lending to key industries by the country's big, government-backed banks.