China vows to contain asset bubbles, avert financial risk in 2017

BEIJING (Reuters) - China will stem the growth of asset bubbles in 2017 and place greater importance on the prevention of financial risk, while keeping the economy on a path of stable and healthy growth, media said, citing leaders at an economic planning meeting.

A Chinese national flag flutters in front of an apartment tower in the southern Chinese city of Shenzhen August 28, 2015. REUTERS/Bobby Yip

China has seen growth stabilize this year, but corporate leverage and credit continue to expand, increasing risks to the world’s second-largest economy as it looks to push forward structural reforms.

The annual meeting is attended by China’s top leaders and is closely watched by investors for clues on policy priorities and main economic targets for the year ahead.

Monetary policy will be kept “prudent and neutral” in 2017, leaders attending the Central Economic Work Conference said in a statement, as reported by the official Xinhua news agency on Friday.

“Monetary policy will be kept prudent and neutral, adapt to new changes in money supply ... and strive to smooth monetary policy transmission channels and improve mechanism to help maintain liquidity basically stable,” they said.

The People’s Bank of China has maintained a prudent monetary policy since 2011, raising or cutting interest rates in line with shifts in the economy. The pro-active fiscal policy has been in place since the depths of the global crisis.

The property market will be a focus of risk control, as authorities will restrain property bubbles and prevent price volatility, they said.

The leaders called for a strict limit on credit flowing into speculative buying in the property market and for a boost in the supply of land for cities where housing prices face stiff upward pressure.

“Houses are for people to live in, not for people to speculate,” Xinhua said, citing the statement.

Another top priority in 2017 is to lower high corporate leverage ratios, including using more debt-to-equity swaps, as the country looks to reign in debt that has risen to 250 percent of gross domestic product.

“Monetary policy may get tighter,” said Wen Bin, a senior researcher at Minsheng Bank in Beijing.

“The spill-over effect of the Fed’s policy has created some pressure and domestic inflation is picking up as the economy stabilizes.”

China will keep the yuan basically stable while strengthening flexibility of the currency, and will ensure market liquidity is basically stable, the statement said.

The yuan hit fresh 8-1/2 year lows on Friday, with expectations for further depreciation rising after the U.S. Federal Reserve increased interest rates on Wednesday.

The leaders pledged to push forward supply-side reform, expand aggregate demand and take a more proactive fiscal policy approach, while continuing with coal and steel capacity reduction efforts. The government will also continue to work on clearing a property glut in third and fourth-tier cities.

Mixed-ownership reform is where China’s state-owned enterprises can make breakthroughs on reforms, the statement said, as China looks to improve competitiveness and productivity of its huge state sector.

China’s economy grew 6.7 percent in the third quarter from a year earlier and looks set to achieve the government’s full-year forecast of 6.5-7 percent, buoyed by higher government spending, a housing boom and record bank lending.

However, growing debt and concern about property bubbles have touched off an internal debate about whether China should tolerate slower growth in 2017 to allow more room for painful reforms aimed at reducing industrial overcapacity and indebtedness.

Reporting by Beijing Monitoring Desk, Kevin Yao, and Yawen Chen; writing by Elias Glenn; Editing by Simon Cameron-Moore, Robert Birsel