China realty cess start of monetary tightening: Cavender

Benjamin Cavender of China Market Research Group says, on CNBC-TV18, that the Chinese government imposed a 20-percent capital gains tax on home sales and raised mortgage rates on second-home purchases to control inflation. The move may indicate the start of a phase of monetary tightening
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Mar 05, 2013, 02.54 PM | Source: CNBC-TV18

China realty cess start of monetary tightening: Cavender

Benjamin Cavender of China Market Research Group says, on CNBC-TV18, that the Chinese government imposed a 20-percent capital gains tax on home sales and raised mortgage rates on second-home purchases to control inflation. The move may indicate the start of a phase of monetary tightening

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China realty cess start of monetary tightening: Cavender

Benjamin Cavender of China Market Research Group says, on CNBC-TV18, that the Chinese government imposed a 20-percent capital gains tax on home sales and raised mortgage rates on second-home purchases to control inflation. The move may indicate the start of a phase of monetary tightening

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Benjamin Cavender (more)

Sr Analyst, The China Market Research Group (CMR) |

Benjamin Cavender of China Market Research Group says that the Chinese government imposed a 20-percent capital gains tax on home sales and raised mortgage rates on second-home purchases to regulate the real estate sector and control inflation. The move, Cavender adds, is the start of a phase of monetary tightening and indicates the government's outlook of a robust and strong economy.

"In all likelihood, the growth rate target of 7.5 percent is going to be exceeded a bit. Economists expect a bit of a slowdown which will stabilise through the second half of the year," he told CNBC-TV18.

Below is the edited transcript of the analysis on CNBC-TV18

Q: What were the curbs on property announced on Monday and what has been the impact on the economy?

A: Monday took a lot of people by surprise. The curbs by the government were in response to a substantial surge in property prices in January. The government has announced a 20-percent capital gains tax on home sales and raised mortgage rates on second-home purchases. This really caught the markets off guard because real estate is one of the major vistas for investment right now.

Despite the tremors in the markets on Monday, the overall economy is still resilient. Investors are cautiously optimistic of a return to fairly strong growth through most of 2013 and that has caused the markets to bounce back. Going forward, the economic growth should be adequate provided the government is able to maintain control over inflation and property prices.

Q: Is this just an isolated initiative to cool asset prices in certain cities or would this extend to all China?

A: This looks like the start of a phase of monetary tightening, so I would not expect any major interest rate-cuts or changes in the reserve ratio to put more money into the market. And this may extend to quite a number of cities in China. In some ways that is a good indication that the government feels that the overall the economy is really robust  and strong.

Q: How have the markets responded to the Chinese economic growth rate of 7.5 percent highlighted for 2013 and an inflation target of 3.5 percent?

A: So far, the response is a bit mixed. Concerns have definitely heightened after looking at the export market in China, the flagging demand in Europe and lukewarm demand in US and Southeast Asia. At the same time, the market will also potentially react positively to consumer spending staying fairly strong in China so far this year. Overall, there is a lot of cautious optimism in the market.

Q: The National People's Congress has set a growth target for the current year at 7.5 percent. Will that be met?

A: In all likelihood, that target is going to be exceeded a bit. Economists expect a bit of a slowdown which will stabilise through the second half of the year.

Q: Will inflation be a concern?

A: Inflation is definitely being looked at very closely after the problems it caused in the past. Through January and February, there was some concern with food prices going up. Even though overall inflation was not that bad, changes in food prices are very sensitive as it really affects the lot of the blue-collar workers. However, inflation has not been too bad as of yet.

Q: Will the PBOC (People's Bank of China) and the National People's Congress start tightening and controlling prices rather than easing them in the next few months?

A: As far as the next few months are concerned, there will be some monetary tightening with regards to property prices which would have a trickle-down effect over the whole economy.

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