China's inflation driven by property prices, idle capital

By Kim Young-gyo
HONG KONG, July 11 (Yonhap) -- China's persistent inflation is being driven by property prices and idle capital, an expert said Monday, urging the authorities to deal with the problem more adequately.
China's consumer prices rose 6.4 percent in June from a year earlier, hitting a 35-month high. They grew more than 5 percent for the fourth straight month and exceeded 6 percent for the first time since July 2008.
Hong Hao, a professor at the state-run Central University of Finance and Economics, said soaring property prices and idle capital seeking speculative investment are the two "real" factors that push up consumer prices in the world's No. 2 economy.
"China has raised interest rates and banks' reserve requirements a number of times but could not effectively bring down inflation," Hong said. "(The authorities) need to verify what really causes inflation."
In a bid to curb rising consumer prices, the central People's Bank of China raised the benchmark interest rates three times this year while increasing the amount of money banks must keep in reserve six times in 2011.
The well-known economy watcher in Beijing said the government must seek to lead the property market out of a bubble, using policy measures on a large scale, and at the same time, must put private capital on the right path.
"China still lacks a proper investment route for idle capital coming from the private sector. Irrational speculative investments are pushing up the prices of different kinds of goods and materials," he said.
China earlier this year came up with a package of measures to counter property speculation over the year, including raising down payments and denying bank loans to buyers who already own two or more apartments.
However, few of these measures have proved effective, as they were not able to stabilize house prices in 70 cities across the country. The country's robust economic growth in recent years has resulted in a large amount of capital floating in the market and not being invested productively.
ygkim@yna.co.kr