The “experimental” approach by China to control asset bubbles may help the country avoid a US-like housing market crisis, said Jeremy Grantham, who predicted that US stocks would lose money in the past decade.
Lawmakers in China have raised mortgage rates and down payment requirements, as well as restricted home loans for multiple-homebuyers in a move to ease property price increases. Ben S. Bernanke, chairman of the US Federal Reserve, said that low interest rates of the central bank did not cause the US housing bubble in the past decade, and better regulations would have been more effective in limiting the boom.
“Bernanke for example has not admitted that asset class bubbles matter at all, but the Chinese know they do,” said Mr. Grantham, chief investment strategist at Grantham Mayo Van Otterloo & Co. He added that China is “adventurous in trying new things, and they’re really quite aware of potential dangers.”
Banking regulators in China said they see increasing credit risks in the country’s property market, and warned of increasing pressures from non-performing loans. Property prices in the country rose 12.4 percent in May from the previous year, the second-fastest pace of price increases.
While China does have a housing bubble, it is not as big as the US because less people own luxury houses and they had to pay larger deposits on them, said Mr. Grantham, adding that there is no stock market bubble in the country.