World Bank sees less of a threat from consumer inflation.

World Bank economists yesterday warned about the risks of asset bubbles in China. That’s even as the government tries to hold back excessive lending and keep prices stable.

Asset price inflation, or increases in housing prices in particular, is potentially "very dangerous" for China because they are self-reinforcing. Hans Timmer, director of the development prospects group at World Bank, said that’s because it’s made possible by what he calls “very cheap credit.”

He said at a press conference in Beijing yesterday that asset price rises bear more risks than consumer inflation.

This was his example. "If the price in a grocery store goes up, then demand comes down. But if the housing price goes up, then actually demand might increase because people expect further increases.”

Housing prices in 70 major Chinese cities increased by 7.8 percent year-on-year in December. That was the fastest pace in 2009, according to official data. But many people complain that price rises are much higher than indicated in the index and have become unaffordable.

Economists said "house price bubbles" bursting could affect the balance sheets of banks and the health of the overall economy.

Questions:

1. Why is a house price bubble bad for business in China?

2. How much did housing prices increase in December?

3. Which is riskier, consumer inflation or housing bubbles?

Answers:

1. Because it could hurt the balance sheets of banks and hurt the health of the overall economy.

2. Housing prices in 70 major Chinese cities increased by 7.8 percent year-on-year in December.

3. Hans Timmer, director of the development prospects group at World Bank, said asset price rises bear more risks than consumer inflation.

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About the broadcaster:

Renee Haines is an editor and broadcaster at China Daily. Renee has more than 15 years of experience as a newspaper editor, radio station anchor and news director, news-wire service reporter and bureau chief, magazine writer, book editor and website consultant. She came to China from the United States.