A property bubble and inflation could offset last year's huge stimulus package. The economy is expected to grow16 per cent this year. In the first week of January, banks provided loans to the tune of 600 billion yuan.

Beijing (AsiaNews) – Despite an expected 16 per cent growth rate, China's economy is faced with a tough financial year ahead. The property market might turn into a bubble and burst, whilst inflation could skyrocket, pushing up the cost of living, this according to Yao Zhizhong and He Fan, economists with the Chinese Academy of Social Sciences, who recently published an article in the official China Securities Journal. “If the government continues with the same strength of macro-economic stimulus as in 2009, there will be notable economic overheating in 2010,” they wrote.

Inflation caused by the government's stimulus package and a possible property bubble are the real threats. If the property market gets out of control, it could have a major impact on the construction industry with negative repercussions on employment levels and new development.

The economists have sounded the alarm because of the level of lending by mainland banks. In the first week of the new year, banks have provided 600 billion yuan (US$ 87 billion) in loans as a result of pent-up demand from the end of last year.

The China Securities Journal cited Ba Shusong, deputy head of the finance institute under the State Council Development and Research Centre, for that figure.

The central government has issued a new directive to the nation's financial watchdogs to help cool the mainland property market. The People's Bank of China and the China Banking Regulatory Commission are also set to tighten their scrutiny of bank lending to prevent the flow of illegal funds into the market.

With home prices in 70 medium and large cities rising 5.7 per cent in November from a year earlier, the lowest end of the market, i.e. migrant workers have suffered the most. Without a place to live, many will be forced back to the countryside. In turn, this will affect industrial production, which relies heavily on their labour.

One way of dealing with the situation is for Beijing should moderate its stimulus measures, economists Yao and He said.

If the stimulus is held at “moderate” levels, the economy will expand 11.6 percent this year, Yao and He said. A complete withdrawal of measures to aid growth would see a dip to 7.7 percent, they said. By comparison, China's economy expanded 8.5 per cent last year, and this despite the world's financial crisis.

Chinese Finance Minister Xie Xuren disagrees with such proposals. A quick exit from stimulus policies will hurt economy, he warned.

Instead, government spending this year should “give greater emphasis to expanding domestic demand," he said

Efforts should be made to expand domestic demand by raising incomes, especially for poorly paid workers and farmers; by continuing to invest in public works, including schools and hospitals; and by changing tax rules.

• china
• economy
• inflation
• real
• estate
• property
• bubble
• market
• stimulus