China worries about house price inflation

Dalian Jan10.JPGThe Dalian polymers future market had a strong end to 2009. As the chart shows, Linear Low Density Polymer volumes (blue line) jumped to 44 million tonnes. The new PVC contract saw the same volume.
But there are growing signs that this may prove a ‘last hurrah’. The government is clearly starting to worry about the impact of speculative excess from its major loan/stimulus package last year:
Today, the central bank raised deposit reserves by 0.5%, which starts to reduce the amount banks can lend
• It has also begun cracking down on banks’ off-balance sheet loans, the ‘hidden loans’ that don’t show up in official figures
• Premier Wen Jiabao has pledged to tackle “excessive” house price rises, after they rose 5.7% in November alone
China’s rise to become the world’s leading exporter in 2009, overtaking Germany, also means the government will come under more pressure to let the currency rise.
In turn, these measures may start to slow China’s demand for polymers. This has been a major boost for hard-pressed Western companies, facing slow domestic markets. But with the China Daily now carrying stories about how young people can’t afford to marry, because of high apartment prices, it is clear that policy changes are round the corner.

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