China's rising property prices posed a threat to the stability of the nation's economy and local officials who failed to take measures to rein in growth would be held to account, the country's highest executive body said.

The State Council, the Cabinet, ordered the clampdown in a six-page document that was circulated to city governments and domestic media last week. A Ministry of Construction spokeswoman confirmed the release of the document.

"Excessive growth in housing prices has directly undermined the ability of city residents to improve their living standards, affected financial and social stability and even influenced the health of the national economy," the document said.

The circular reflects the Central Government's determination to deflate urban home prices that jumped almost a fifth in the past year in Shanghai alone.

The central bank March 16 raised the minimum interest rate lenders must charge on home loans and encouraged them to demand higher down-payments in areas of “excessive” growth.

"The State Council's tone is very harsh," said Fan Weiwei, a Beijing-based economist at China International Capital Corp., the nation's biggest investment bank.

“People's expectations of future property prices will definitely be changed. The likelihood of further price surges is becoming minimal,” said Fan.

The government is trying to slow economic growth to eight percent this year, from an eight-year high of 9.5 percent last year, by restricting investment in property and other industries.

Investment in real estate in the first two months jumped 27 percent to 120 billion yuan (US$14.49 billion), the government said this month.

“Local governments must put on the agenda the important task of stabilizing housing prices,” said the State Council document, dated March 26.

“People in charge will be held responsible if there are no effective measures to prevent housing prices from rising too fast”, the document said.

Prices in Shanghai surged 18 percent in the past year, according to the city government's property index.

Shanghai's property prices are “worthy of concern and attention,” central bank governor Zhou Xiaochuan said March 9.

The State Council urged local governments to increase construction of cheaper homes for low-income families, make better use of idle land and slow the pace of housing demolitions to ease supply shortages.

The 16 banks operating in Shanghai agreed to stop making loans for homes that are being sold within a year of purchase to help cool speculation.

The city government earlier this month imposed a 5.6 percent capital gains tax on such sales.

Nationwide, property prices rose 10.8 percent in the fourth quarter from a year earlier, accelerating from an 8.6 percent gain in the previous three months, government figures show.

(Shenzhen Daily April 4, 2005)