Economic growth should not be overly dependent on the property sector, warned a report from the Chinese Academy of Social Science (CASS).

The report followed the CASS's investigation into the US subprime mortgage crisis in June. It pointed out that the government should rethink the development of the real estate sector, and clarify their role in the market.

Local governments used to bank on the real estate sector for economic growth and land transfer fees were regarded as the main source of local fiscal income.

Statistics from the National Bureau of Statistics show that investment in the real estate sector last year reached 2.53 trillion yuan (US$370.13 billion), contributing 10.25 percent to the country's GDP.

But the government's over dependence on the real estate sector may twist the driving force of the economy, raise factor costs at a bad time and weaken the integral competitiveness of the economy. Worse still, it may trigger social disputes.

Redesigning the financial system that caters for the real estate market is also urged in the report, so as to curb the housing bubble and banking risks.

It said that commercial banks should control loan quality to offset the adverse impact of the fluctuation of the real estate market and developers should be encouraged to raise funds in the capital market.

The report suggested that the government reform the housing fund management system and establish housing mortgage banks and companies dealing in securities to back housing mortgages. However, it said the government should be cautious in designing such a financial system, especially with financial derivatives, to avoid risks from one sector spreading to the overall market.

House renting market should be set for the lower-income group measured by a credit rating, advised the report.

(China Daily September 26, 2008)