China boasts a booming economy and a housing market on the move, but it’s not cause for celebration for the country’s leaders. In fact, China’s government is taking steps to rein things in to prevent the kind of bubble that sparked the global credit crisis. But will the moves tamp down exchange traded funds (ETFs), too?
The Chinese government reported this week that its economy expanded 8.7% in 2009, surpassing the 8% target Beijing had set early last year. Fourth quarter growth hit 10.7% from one year earlier, as well.
But the news of that growth also has China putting the stops on the housing market, the main driver that is taking the country from emerging to industrialized in record time, reports Andrew Batson for The Wall Street Journal.
In particular, there are fears that China could eventually be dogged by the same troubles that led to Japan’s housing boom and bust in the 1990s. The effects of that bust lingered in Japan for years. [How to spot and avoid ETF bubbles.]
In Beijing, the government placed further controls on the state bank lending that helped fuel the boom primarily by funding new building. Bank of China Ltd. will stop making new loans for the rest of the month, while several smaller banks will have to hold more of their funds in reserve, people familiar with the situation. [Has boosted investment paid off for China?]
Investors have been spooked by these moves, sending Shanghai’s main stock index down 2.9% Wednesday. The jitters also spilled over into other major markets, sending indexes in the United States lower this week. [China’s nuclear industry.]
Matt Phillips for The Wall Street Journal says that Wednesday’s stocks tumble was in part because of signs that policymakers in China may be making moves to reduce liquidity. As demands for loans recede, China’s pressure on the commodities markets may continue to weigh on shares.
China isn’t the first rapidly growing country to take steps to make sure growth is kept in check. Late last year, Brazil implemented a 2% tax on new foreign investment. [More on Brazil’s new tax.]
For more stories about China, visit our China category.
- iShares FTSE/Xinhua China 25 (NYSEArca: FXI)
- SPDR S&P China (NYSEArca: GXC)
- Claymore/AlphaShares China All-Cap (NYSEArca: YAO)
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