12/18/2007, 00.00
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The value of property and financial stocks dropping

Investors are concerned about government moves in these sectors to fight rising inflation. Stakeholders wonder what Beijing will do. Tighter bank lending might cut liquidity to small enterprises, which are the engine of the economy. Experts propose raising salaries to deal with the situation.

Beijing (AsiaNews/Agencies) – Stocks tumbled yesterday after the government announced new anti-inflation proposals. The issue is grabbing people’s attention but uncertainty still reigns as to what Beijing will do.

Shanghai’s Hang Seng Index closed 3.51 per cent lower, but real estate stocks lost much more in both Shanghai and Shenzhen. In Hong Kong, the property index fell by 6.11 per cent with institutional investors selling down mainland property stocks.

Yesterday, China Vanke—the largest developer on the mainland—lost 9.52 per cent. The Poly Real Estate Group lost 6.82 per cent.

Investors are concerned about rising interest rates, especially Beijing's crackdown on rampant speculation.

Property transactions in Shenzhen have dropped 70 per cent from a peak in June and about 10 per cent of the 30,000 estate agents quit.

Financial stocks recorded similar losses.

Inflation is rising and has been rising for years on the mainland. In November the consumer price index topped an 11-year high at 6.9 per cent.

Government interventions designed to stop inflation like higher interests on loans and higher reserve requirements for banks have not made much of a difference.

Stakeholders are still wondering what Beijing will do next. What is already known though is that in order to curb credit growth the government will tighten bank financing and make it harder for companies to raise money from bank sources.

For Wu Xiaoling, a central bank deputy governor, this approach is not likely to affect large companies, which already finance themselves from other sources of capital like the stock market, but would deny much needed liquidity to small enterprises which account for 99 per cent of the country's registered businesses, and are responsible for about 60 per cent of gross domestic product.

Liu Shiyu, another deputy central bank governor, agrees that banks should lend more for agricultural development, innovation by small firms and for affordable housing, i.e. the areas that tend not to have access to bank credit.

Many experts are concerned that a squeeze in bank credit rather than stop inflation “will probably have a big impact on the real economy,” said Xia Bin, a senior economist with the Development Research Centre, a top think-tank under the State Council.

Real economic growth has in fact relied heavily on bank loans. Banks granted 3.58 trillion yuan (US$ 484.5 billion) in new loans in the first 11 months of this year, but only 87.4 billion yuan in net new loans last month, down from 302.9 billion yuan in August. Even then, loans to small enterprises have accounted for just 14 per cent of all bank lending.

Experts propose instead to increase salaries for blue and white collar workers. Wages have usually been held very low to attract foreign investment. Should they be raised domestic consumption would also rise, absorb production and reduce dependency on exports to the United States and Europe, which are now threatening protectionist measures.

Low public sectors salaries, many times lower than those in the private sector, are seen as a cause in the widespread corruption and inefficiency.

Tens of million of migrants have also not profited from the booming economy and their inadequate economic conditions have led to frequent mass unrest. (PB)

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