China Shows Signs of Asset Bubbles: Researcher

China is showing signs of asset price bubbles as a surge in new lending pushes up prices in the stock and real estate markets, the official Shanghai Securities News quoted a government think tank official as saying.

Wei Jianing, a senior researcher at the State Council Development & Research Centre, was quoted as saying that nearly half of China's newly created liquidity has been circulating in the financial system instead of flowing into the real economy to support growth, thus pushing up asset prices.

"There have already appeared some new early indications of asset price bubbles in China," Wei was quoted as telling a conference.

The newspaper also quoted Cheng Siwei, an influential former Chinese lawmaker, as saying that about 2.4 trillion yuan ($351 billion) of new lending in the first quarter of this year was used for investment purposes, including stock and property investment.

Total new lending in the first quarter was 4.58 trillion yuan.

He said it was impossible to judge at the present time, however, whether a bubble had already developed in the stock and property markets.

Cheng predicted that China's economic growth could meet the government's target of 8 percent this year and would reach 9 percent in 2011, a sustainable rate of growth, the newspaper said.

In order to boost domestic consumption, China should increase workers' wages, improve individuals' returns on asset investment, strengthen social safety networks and increase consumer lending, the article quoted Cheng as saying.

Chinese Paper Warns Of Risks In Lending Surge

Separately, the People's Daily reports that China's torrent of bank credit is pouring too much money into big infrastructure projects and government-backed investments that sometimes have been poorly vetted.

The People's Daily said the surge in lending has helped shore up growth but has also sowed
potential risks that demand closer attention.

It adds to a recent drum-beat of warnings about the potential long-term downside of China's credit-fuelled growth.

"Extraordinary times mean extraordinary means," said the newspaper, noting that new credit in the first half of 2009 is sure to top 6 trillion yuan ($878 billion), more than new credit for any entire year since the founding of the People's Republic of China in 1949.

"However, this torrent of credit also has issues and problems that warrant our attention."

Among the problems, the paper said, is the concentration of credit going to railways, highways, airports and other big government-sponsored undertakings, diverting loan opportunities from the small and medium-sized businesses that generate the most jobs.

The paper adds that banks see loans to government projects as sure bets, and have sometimes become lax in assessing risks and likely returns.

"To win government projects, some banks have even relaxed credit checks, lowering barriers for loans," said the paper.

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"Doing this does not seem to have any risks in the short term, but in the longer run, the returns on some government investment projects will not be high and the collection period will be long, so it will be difficult for these projects to ensure adequate cash flows to cover principal and interest."

New lending by Chinese banks is likely to hit 1.2 trillion yuan ($176 billion) in June, the China Securities Journal reported on Friday, even as bank regulators warned about improper loans.

New lending in the first five months totaled 5.84 trillion yuan, easily topping the government's full year minimum target of 5 trillion yuan.

Copyright 2009 Reuters. Click for restrictions.