China warns of possible bubble risk in finance sector, Latest Business News - The New Paper

China warns of possible bubble risk in finance sector

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BEIJING: China's financial sector faces bubble risks, a government official warned yesterday and said a property tax may be on the cards as authorities extended their efforts to reduce a build-up of debt in the economy.

The ratio of China's financial sector to the overall economy "is the highest ratio in the world", said Mr Huang Qifan, deputy chairman of the economic and finance committee under the National People's Congress.

"This is not a good thing," Mr Huang told a finance forum. China's financial sector as a share of gross domestic product was 8.5 per cent in the first nine months of this year.

The government is in the second year of a crackdown on speculative investment and high corporate debt levels as it looks to defuse financial risks and a property bubble.

Authorities have been concerned about speculative financing and have taken a hard line against risky, shadowbanking activities.

Progress, however, has been mixed as policy makers walk a tight rope in trying to reduce China's years-long addiction to debt without shattering economic growth.

Borrowing rates have risen slightly and M2, or broad money supply, growth slowed to a record low of 8.8 per cent year-on-year last month. But credit continues to expand faster than GDP and consumer debt is rising very rapidly.

"M2 in the US is 70 per cent of GDP, ours is over 200 per cent," said Mr Huang.

"The excessively high M2 leads to inflation, primarily reflected in housing prices, which have risen about eight-fold in the past 10 years."

On the country's massive foreign exchange reserves, which rose to US$3.109 trillion (S$4.2 trillion) last month, he added: "China has reached a stage where the foreign exchange reserves system must be reformed." - REUTERS