Hong Kong Financial Secretary John Tsang on Saturday warned the Asia-Pacific Economic Cooperation member economies of the high risk of "asset-market exuberance" in the region.
Speaking at the 17th APEC Finance Ministers' Meeting in Kyoto, Tsang spoke of the daunting challenges posed by continuous capital inflows. Although governments and central banks in Asia had handled the 2008 global financial crisis well, the external outlook is more uncertain as Europe's sovereign debt problem and weak growth in the United States and Japan weigh heavily on the global recovery.
"There does not appear to be a quick fix, and the situation will continue in the medium term. The world economy requires rebalancing and we in Asia need to focus on finding new markets and developing our own domestically driven growth," Tsang said.
The fragile external environment meant the abundant supply of global liquidity floating around an ultra-low interest rate was going to remain longer than had been expected. This would entail a higher risk of "asset-market exuberance" in Asia.
"We in Hong Kong, China, have already announced several rounds of measures to ensure the healthy and stable development of our property market. The measures aim to increase supply, curb property speculation, ensure transparency and prevent excessive expansion in mortgage lending," he said.
"These measures are taking effect. But with further quantitative easing initiatives such as America's second round of quantitative easing, market volatility will increase and asset price inflation will worsen. We are extremely concerned with the impact of QE2 on the regional economies and will not hesitate to introduce further appropriate measures should that prove necessary," he added.
Noting that other countries in Asia were also facing daunting challenges from continuous capital inflows, he said: "Whatever the measures authorities across Asia have taken or will take, these measures are all meant to maintain the sound fundamentals of Asian economies, which are important for a solid, sustainable recovery."
In addition to continuous capital inflows, Tsang warned the meeting to guard against upside risks in inflation and rising protectionist sentiment that would jeopardize the global recovery.
