China Looks Fragile

Zhou Says China Should Be ‘Very Cautious’ in Crisis Exit

March 6 (Bloomberg) -- Chinese central bank governor Zhou Xiaochuan said the nation should be careful in exiting anti-crisis policies, suggesting that the government may not let the yuan appreciate soon against the dollar.

“We must be very cautious about the timing of normalizing the policies, and this includes the renminbi rate policy,” Zhou said at a press briefing in Beijing today, using another term for the Chinese currency. A global recovery “isn’t solid,” he said.

Premier Wen Jiabao yesterday pledged a moderately loose monetary stance and a ‘basically stable’’ yuan even after the world’s third-biggest economy expanded 10.7 percent in the fourth quarter. The government is already winding back credit growth as it balances the threat from inflation against the risk that weak recoveries in the U.S. and Europe will cap export demand.

“They’re afraid of applying the brakes too drastically,” said David Cohen, an economist with Action Economics in Singapore. “China needs higher growth than just about anywhere else to sustain employment and maintain social stability.”

The central bank has kept the yuan at about 6.8 per dollar since July 2008, aiding exporters and fueling tensions with trading partners. The nation’s package of measures to respond to the global financial crisis included a 4 trillion yuan ($586 billion) stimulus package and the scrapping of quotas limiting bank lending.

IMF’s Verdict

Zhou said today that the International Monetary Fund is the key judge of currency policies and China has taken its views into account. He also said that exchange-rate issues shouldn’t be politicized.

IMF Managing Director Dominique Strauss-Kahn has repeatedly called the yuan “undervalued.”

In a statement before the briefing, the central bank said that it will promote a more diversified international currency system. That’s after Zhou last year urged moves to explore a new global currency to reduce reliance on the dollar.

From UPI:

Real estate boom in China prompts fears

SHANGHAI, March 5 (UPI) -- The current real estate boom being enjoyed in China could result in a collapse that could have devastating implications for the world's economy, experts say.

The New York Times said Thursday there are concerns the positive real estate trends in China are indicative of a growing real estate bubble that will eventually burst and create fallout that could impact China and other countries' economies.

"By all the traditional measures, like rental yield, this is a bubble," independent analyst Andy Xie said of China's positive real estate trends.