Property Risks ‘Overshadow’ China Outlook, OECD Says
Nelson Ching/Bloomberg
Construction takes place on a property development in Beijing, China.
Construction takes place on a property development in Beijing, China. Photographer: Nelson Ching/Bloomberg
Property risks are “overshadowing”
China’s economic outlook as a slowdown in sales threatens to
trigger developer collapses, the Organization for Economic
Cooperation and Development said.
“While the exit of small developers would not pose a
problem, the failure of large promoters could put some bank
lending at risk, perhaps triggering negative chain reactions,”
the Paris-based OECD said in a report yesterday. “A key risk is
an overly quick liquidation of unsold property.”
China’s economy, the world’s second biggest, will expand
8.5 percent next year even as export growth is pulled down by
weak demand and a decline in the nation’s competitiveness, the
report said. Government housing projects can help to support
construction and moderating inflation may allow Premier Wen Jiabao’s government to cut interest rates from the middle of
2012, the OECD said.
Vice Premier Li Keqiang said Nov. 25 that the property
market is at a “critical stage” and indicated that curbs
should be maintained even as sales fall. October housing
transactions declined 25 percent from September and prices fell
in 33 of 70 cities, according to government data.
China Vanke Co. (200002), the nation’s biggest publicly listed
developer, has said that it may adjust prices at some
projects though it has no plans to do so nationwide.
“Individuals have been holding back from purchasing houses
and developers carry a rising level of unsold inventory,” the
OECD said. A property slump could hurt migrant workers relying
on construction work and purchasers facing losses, it said.
Japan’s Risks
Japan, the region’s second-biggest economy, risks seeing a
spike in government bond yields unless it controls a debt load
set to approach 230 percent of gross domestic product in 2013,
the OECD said.
“The delay in fiscal consolidation and the continuing rise
in the public debt ratio compound the risk of a run-up in long-
term interest rates,” the report said.
Yields on benchmark 10-year notes touched 1.065 percent
yesterday, the highest level since Sept. 2, after Standard
Poor’s and the International Monetary Fund last week warned
about the country’s mounting debt. The government should weigh
forming a panel to assess its policymaking progress and put a
“stronger legal foundation” under its fiscal targets, the OECD
said.
While the economy is recovering from the March 11
earthquake, the initial boost after the disaster has started to
wear off, the OECD said. Reconstruction demand will help drive
growth through the middle of 2012, it said.
Australian Rate Cuts
Elsewhere in Asia Pacific, Australia has scope to cut
interest rates should Europe’s sovereign-debt crisis stall
global growth, the OECD said, a scenario investors already are
betting on.
If downside risks to the international economy materialize,
“monetary policy should be eased significantly to sustain
demand in the context of moderating inflation,” the OECD said.
Australia’s government could also boost spending, it said,
though that would delay a pledged return to a budget surplus in
2012-13.
Australia’s central bank responded to heightened global
risks and weaker inflation pressure by lowering its benchmark
rate by a quarter percentage point to 4.5 percent on Nov. 1, the
first reduction in 31 months. Swaps traders wager policy makers
will need to cut again and reduce borrowing costs by more than
1.5 percentage points over the next year, a Credit Suisse Group
AG Index shows.
–Paul Panckhurst, Lily Nonomiya, Michael Heath. Editors: Paul
Panckhurst, Nerys Avery
To contact Bloomberg News staff for this story:
Paul Panckhurst at
ppanckhurst@bloomberg.net
To contact the editor responsible for this story:
Paul Panckhurst at
ppanckhurst@bloomberg.net