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. Last Updated: 07/27/2016

Chinese Fighting Risks of Overheated Market

BEIJING -- China, worried about surging property prices it has failed to cool, is taking further steps to avoid a speculative bubble that could pose risks to the economy and its fragile banks, officials said.

One new measure, a property tax, will go on trial this year in some cities ahead of nationwide implementation, said Long Guoqiang, an economist at the Development Research Center, the State Council's think tank that has been studying the plan.

A Construction Ministry official said the council had also recently dispatched a circular telling local governments to redouble their efforts at curbing property prices.

"We are preparing to take stronger measures in line with the requirements of the State Council," said the Construction Ministry official, who declined to be identified.

Local governments are traditionally very keen to promote construction and the jobs that it brings.

The official confirmed the plan to levy a property tax, but declined to give details.

The government identified property development in mid-2003 as a big part of excessive fixed-asset investment across the economy. It was worried that if prices fell and left developers and buyers with apartments worth less than they cost, confidence would be damaged, jobs lost and banks' bad debts inflated.

So the government told banks then to lend less for housing and ordered local governments to make less land available for development. But prices have continued to gallop higher.

Indeed, restricting the supply of development land seems to have backfired. By making apartments scarcer than they otherwise would have been, that measure has helped drive up prices.

Average nationwide property prices in the first two months of 2005 were 18 percent higher than a year earlier, according to the official Economic Daily. The upward trend appears to be accelerating, since the central bank has said year-average property prices in 2004 were 14.4 percent higher than in 2003.

"The government is worried about a property bubble and at the same time ordinary people are annoyed about rises in housing prices," Long said, explaining why more measures were coming.

China has been here before, and not too long ago. A property bubble burst in the mid-1990s, leaving banks with much of their current bad-loan burden of $200 billion.

One new move has already been publicized. Last month, the central bank let commercial lenders raise mortgage interest rates and demand higher down payments in some cities where prices had risen very strongly.