2010-07-30 09:30

BEIJING - A property bubble continues to pose the biggest risk for China's economy in the second half of the year and there is still room for correction in housing market, US financial services company Standard & Poor's said on Thursday.

"From the domestic standpoint, the biggest risk in China's economy is the property bubble," said David Wyss, global chief economist of S&P at a press briefing.

Even as the country's housing prices saw the first monthly fall in June this year from February last year, Wyss said homes in China are still pricy and there is room for correction.

Property prices in China remain at a historically high level despite Beijing's recent property tightening measures including requiring higher down payments and mortgage rates to curb rapid housing price rises.

The mainland overtook Hong Kong in the first quarter of this year as the world's hottest housing market, with prices more than doubling, according to global property adviser Knight Frank LLP.

Housing prices in 70 Chinese cities rose 11.4 percent in June from a year earlier compared to 12.4 percent in May, according to the National Bureau of Statistics.

Policymakers in Beijing reiterated recently that tightening measures to curb speculation in the country's real estate sector will not be changed and the latest round of measures has met targets as evidenced by falling property sales and stabilized prices.

While China's growth prospects remain strong, factors including the uncertainty in Europe, stimulus exits in developed economies and domestic monetary policy tightening measures would still affect China's economic growth in the coming quarter, Wyss said.

The impact of the European debt crisis on China will be manageable as the nation has important trade links with Europe, said David Beers, managing director and global head of sovereign ratings at S&P.

"Sluggish economic growth in the eurozone over the medium term suggests that China's exports to the eurozone are likely to grow slowly, which will depress China's GDP growth prospects a little," Beers said.

"But China's exposure to the credit risks of European banks and the eurozone sovereigns is relatively modest," he said.