China plans affordable housing to beat "stagflation"

* China aims to build 10 mln units of affordable housing

* Property market shows signs of cooling

# Analysts expect no relaxation soon in property tightening

BEIJING, March 9 (Reuters) - China will invest about 1.3 trillion yuan ($198 billion) this year to build subsidised homes for rent or sale to low-income people, the official People's Daily reported on Thursday.

The massive investment in the category known as affordable homes -- about a third as much as China's stimulus package during the global financial crisis -- reflects a delicate balancing act for the government: It is trying to curb inflation and property speculation while ensuring that its tightening efforts do not unduly harm growth.

"Stagflation ... would be the worst outcome. We must work hard to avoid it," Premier Wen Jiabao said in a closed-door discussion earlier this week during China's annual session of parliament, according to China Business News, a local paper.

Even if the risk of stagflation is remote, with the world's second-largest economy expected to grow 9.3 percent this year, Li Xunlei, chief economist with Guotai Junan Securities in Shanghai, said the risks were pointing up for inflation and down for growth.

"China's economic growth has shown signs of sluggishness recently, but inflation will hit new highs in April," he said.

To avoid such an outcome, the world's second-largest economy plans to build 10 million units of affordable housing this year, up from its aim of 5.8 million in 2010.

That will help counter the impact of an intensifying tightening campaign since late 2009 to cool the real estate market and, more recently, to tame consumer inflation.

Li estimated that the affordable housing drive would make up about a fifth of China's overall property investment this year. Real estate investment accounts for about 10 percent of China's gross domestic product.

In recent weeks, housing transactions have again shown some signs of declining and home prices have risen more slowly.

"The risks of a housing bubble are significantly lower in China now, and the economic fundamentals remain sound," said Dong Xian'an, chief economist at Peking First Advisory, a private consultancy.

Chinese consumer prices rose 4.9 percent in the year to January, near a two-year high. Economists expect that inflation slowed to 4.7 percent in February but could rebound in coming months.

China's top leaders have vowed to prevent a housing bubble and control consumer inflation. So far, complaints about rising prices amount to little more than grumbles, but serious inflation has sparked social unrest in China in the past.

Sensitive to this history, Beijing is unlikely to relax its property and price controls any time soon, Ren Zhiqiang, chairman of Chinese developer Huayuan Property (600734.SS), told Reuters last week. [ID:nTOE72200F]

Some analysts think the government will add to its package of tightening measures by levying a new transaction tax on people who sell residential units very soon after buying them.

But Dong said the focus was instead likely to be on reinforcing existing measures. He and others expect home prices to fall moderately this year in first-tier cities, where the tightening has been most severe. (Reporting by Langi Chiang and Simon Rabinovitch; Editing by Ken Wills)