China moves to prevent property bubble

China unveiled restrictions on property speculation on Thursday as economic growth accelerated to 11.9 per cent in the first quarter from the same period last year.

The latest data underlined the country's rapid recovery from the global economic crisis but raised questions about the risks of overheating.

The economy expanded at its fastest rate in nearly three years -- and more quickly than economists had expected -- putting fresh pressure on the authorities to consider tougher tightening measures, including appreciating the exchange rate and interest rate rises.

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In spite of rising fears of overheating, consumer price inflation dipped to 2.4 per cent last month from 2.7 per cent in February, according to data published on Thursday. But factory-gate inflation continued to accelerate, increasing half a percentage point to 5.9 per cent.

First-quarter gross domestic product figures came out a day after the government said housing prices had increased 11.7 per cent during the past 12 months.

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The growth was the fastest since the data series began five years ago and prompted fresh concerns about a potential bubble in the property market.

The State Council said anyone buying a second home would need to put up a 50 per cent deposit, up from 40 per cent, while the mortgage rate for second homes was also increased. The down payment for first homes bigger than 90 sq m was set at a minimum of 30 per cent.

Tom Orlik, an economist at Stone & McCarthy in Beijing, said growth appeared to be more balanced, relying less on public investment and more on consumption and foreign demand. But he added that "with growth now strong and headline inflation still subdued, the government has a window of opportunity to rein in the policy stimulus before it tips over into excess".

"This is the best tool available to cool the market," said Andy Rothman, economist at CLSA in Shanghai. "It will have a big impact on the handful of cities in eastern China where price increases have been crazy, without killing the market."

Although the first-quarter numbers reflected in part the slump in the economy at the same time last year, sequential growth was also strong. The economy grew 11.3 per cent from the fourth quarter on a seasonally adjusted basis, Goldman Sachs said.

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The government has already taken some steps to reduce the stimulus it is injecting into the economy, including much tighter control over bank lending in March. However, domestic concerns about potential inflation come at a time of growing international pressure to abandon China's de facto currency peg against the US dollar. Ben Bernanke, Federal Reserve chairman, on Wednesday called for a more flexible renminbi, saying it would help China keep inflation under control.