Nov. 13 (Bloomberg) -- China is facing the biggest challenge to its currency policy since the start of the global recession as economists warn the peg to the dollar risks causing an asset bubble.
As recently as Nov. 9, People’s Bank of China Governor Zhou Xiaochuan said he didn’t feel much pressure to let the yuan rise, deflecting calls for an increase as exports start to recover and President Barack Obama prepares to discuss the issue in Beijing next week. China’s stance risks adding to liquidity after credit surged by $1.3 trillion this year.
China’s sales of yuan to keep it fixed to the dollar contributed to a 29 percent jump in money supply, and the peg helped spur more than $150 billion in speculative funds from overseas in the past six months.
If China keeps the peg, it will be powerless to prevent asset bubbles especially, property. In Shanghai’s downtown Xuhui district, developer Shanghai Greenland (Group) Co. paid 7.245 billion yuan for 90,000 square meters in September, a record for the city’s auctions, according to real-estate services firm Colliers International, a London- based property broker. In the eastern city of Shenzhen, home prices climbed 11 percent that month from a year earlier.
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