China central banker warns of asset price bubbles

SHANGHAI, Nov 27 (Reuters) Chinese authorities are worried that excessive availability of funds in the money markets may lead to asset price bubbles, a senior central bank official said at the weekend.

''The basic situation now is that liquidity is excessive -- this is very dangerous,'' the official China Securities Journal quoted central bank deputy governor Wu Xiaoling as telling an economic conference in Beijing.

''We intend to keep interest rates fairly low, in line with international levels. But these low rates can easily lead to an asset price bubble -- this is what we are currently paying attention to and what we are worried about,'' she said.

As a result, the central bank will not be able to loosen its grip on the money supply next year, Wu added.

In the past few weeks the seven-day repo rate , a key measure of the tightness of funds in the short-term money markets, has climbed to multi-year highs above 3.00 percent.

The tightness is not because money supply is insufficient, but because money is not being allocated efficiently by the markets and the structure of the financial system is not reasonable, Wu said.

Banks therefore need to be prevented from providing too much money through lending and should be encouraged to use their money more efficiently, she added.

The report did not quote her as specifying which markets were in danger of developing bubbles. Previously, officials have said growth in bank lending needs to slow and industrial investment growth, while easing, remains high.

Real estate prices are continuing to rise in many cities while the Shanghai stock market <.ssec> is up 77 percent this year at a five-year high.

The central bank's growth targets for broad M2 money supply and bank lending do not have to be met strictly, but they need to be set as guidelines for policy, Wu was quoted as saying.

Reuters DH VP0552