Bubble Risks Test China’s Commitment to No Sharp Turn in Policy

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(Bloomberg) — Despite Beijing’s best efforts, asset bubbles are forming in China.

Home prices are soaring, prompting officials to revive the idea of a national property tax. A surge in raw material prices spurred pledges to increase domestic supply, toughen market oversight, and crack down on speculation and hoarding.

The rapid gains are challenging the central bank’s ability to restrain inflation without hiking borrowing costs or making a sharp turn in monetary policy — something the People’s Bank of China has said it will avoid. The risk is the government’s attempts to curb price increases won’t be enough, forcing the central bank’s hand at a vulnerable time for domestic consumption.

That would be a shock to the nation’s financial markets, which are pricing in a relatively benign scenario. The 10-year government bond yield has fallen to the lowest level in eight months, while the stock benchmark CSI 300 Index is the least volatile since…

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