WORLD PROPERTY CHANNEL ®

James Chanos

(BEIJING, CHINA) -- China's economy is on a roll and real estate prices keep climbing, but Premier Wen Jiabao doesn't see a crisis looming, according to numerous reports from the world's largest auto market and No. 1 exporter.

Neither does the Washington, DC-based World Bank. But it does suggest the Premier and his cabinet should raise interest rates "to help contain the risk of a property bubble" and allow a stronger yuan "to help damp inflation expectations," according to Bloomberg.

China's policies to counter the financial crisis have included pegging the currency at about 6.83 yuan per dollar. (It previously was pegged at 1 yuan = 0.146486 U.S. dollars.)                       

U.S. economists are not certain that move will help to keep inflation in check.

Analysts at Morgan Stanley say higher reserve requirements for China's bank may be "imminent" and interest rates could start to climb in April, Bloomberg reports.

Banks lent an unprecedented 9.59 trillion yuan last year to back the government's stimulus program.

Citigroup Inc. has warned that in a "worst case scenario" the non- performing loans of local-government investment vehicles could climb to 2.4 trillion yuan by 2011, leading to bank bailouts, according to Bloomberg.

The lender's confidence in China's "healthy growth prospects" contrasts with warnings from investors such as New York City hedge-fund manager James Chanos.

Chanos warned in January that "pockets of overheating" suggest the Chinese economy is "getting ready to throw a piston."

The central bank of China has twice raised banks' reserve requirements this year and the government is targeting a 22 percent reduction in new lending, according to Bloomberg.

A quarterly survey of 20,000 households in February showed inflation expectations rising, the People's Bank of China has reported.

The World Bank forecasts inflation of 3.7 percent this year, adding that it was "unlikely to be very high" because of global excess capacity.

That forecast compares with Premier Wen's target of  "about 3 percent," Bloomberg reports.

"Nonetheless, the macro stance needs to be noticeably tighter than in 2009 to manage inflation expectations and contain the risk of a property bubble," the World Bank says in a new report.

"Financial stability also requires policy attention to keeping local government debts manageable."

Wen Jiabao, China Premier

The World Bank urged China's leaders to consider raising interest rates which have been left unchanged since cuts in 2008 to counter the effects of the financial crisis.

The benchmark one-year lending rate is 5.31 percent, while the deposit rate is 2.25 percent.

If policy makers are concerned that higher rates will attract inflows of capital, after an estimated $73 billion of "hot money" arrived last year, "more exchange-rate flexibility would help," the World Bank reported.

China's exports may jump 14.7 percent in 2010 and the nation will expand its global market share, the bank forecasts, adding that imports may climb 16.4 percent. Consumption and real-estate investment will contribute to strong growth this year, the bank said.

China is poised to overtake Japan as the world's second- largest economy this year, according to the International Monetary Fund.

Tokyo-based Nomura Holdings Inc. anticipates China will contribute more than a third of global growth, according to Bloomberg.

China has already surpassed the U.S. as the world's largest auto market and Germany as the No. 1 exporter. 

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