Some Chinese See Japan in the Mirror

On the heels of last week's boost in bank reserve requirements and other monetary policy tightening measures, a Chinese government think tank is calling for restrictions on credit to reign in an overheating property market.

According to People's Daily Online, the Chinese Academy of Social Sciences, in its "2006-07: World Economy Analysis and Forecast," says it is

necessary to keep the interest rate high and real estate cool to avoid the risk of a crisis such as the one Japan weathered in the 1990s.

"China should not increase domestic demand on the price as it could risk enlarging the real estate bubble," according to the report.

China should draw lessons from Japan in the 1980s, when the country's low interest rates caused domestic demand to rise so much it eventually created a huge real estate bubble for the economy.

"There are amazing similarities between the current Chinese real estate market and that of Japan's in the 1980s," the report said.

The property market fell apart in the 1990s, leading to "the lost 10 years" of economic stagnation. The Japanese economy did not recover from the nightmare until the end of 2005.

"Different from Japan, the Chinese government has adopted many macro regulatory measures in the sector since 2005, with good results," the report said.

"However, the measures have not dealt with all the possible risks. China still has a lot in common with Japan at that time."

It sounds like those who only see upside in China should be paying a bit more attention to what the locals are saying.