Blowing Bubbles

 
 

Some interesting economic news released over the past couple of days suggests that the pressure is still on the government to take tightening measures to stop the economy overheating. As the FT reported today:

‘Consumer prices rose by 2.7 per cent in February from a year ago, well above January’s 1.5 per cent increase and close to the 3 per cent ceiling that Premier Wen Jiabao set for this year in his speech to the National People’s Congress.

‘Industrial production also accelerated, increasing by 20.7 per cent for the first two months of 2010 over the year before. The figure came in above analysts’ forecasts and the 18.5 per cent increase recorded in December. Factory gate prices climbed 5.4 per cent in February against 4.3 per cent the month before.

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‘The latest jumps in inflation and industrial output follow a bigger than expected increase in exports last month and will add to fears that the Chinese economy runs the risk of overheating as a result of the massive stimulus measures introduced last year.’

The figures that have really had observers talking though are those for property prices, which have prompted speculation of a worrying bubble. Alex Stevenson, blogging in the FT, notes:

‘As we noted two days ago, it looks like current soaring prices property market are here to stay.

‘Which leaves us wondering exactly where Wen Jiabao promise to deal with “latent risks” in the banking system and put an end to rampant speculation in the real estate market is at.’

With prices seeing double-digit growth last year the political implications of urban residents unable to afford new homes is clear. However, officials are likely to want to tread more carefully than they did in 2008, when a crackdown on booming real estate brought the market to a shuddering halt.

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