The resulting bust could derail growth and leave banks with massive holdings of bad loans.
The government earlier reimposed taxes on some property transactions and clamped down on lending for second homes, ordering tighter scrutiny of loans and inflows of foreign funds to prevent illegal investments.
But such requirements might not deter deep-pocketed investors looking for fast gains. Among those notorious for running up property prices in Shanghai are private businessmen from the capitalist manufacturing bastion of Wenzhou.
Having helped drive up prices for property and stocks — the Shanghai benchmark surged 80 percent last year — the Wenzhou speculators, among others, moved into agricultural commodities.
Last autumn, cash flooded into the market for garlic, and then into the wholesale market for dried chilli peppers, which tripled in price in late 2009 to about 30 yuan ($4.40) per kilogram. Market vendors complained of scarce supplies, and consumers and restaurants griped about the cost. In an earlier speculative frenzy, investors focused on Pu'er tea.
"Farmers were hoarding the chilli peppers, expecting the price to rise, and the market speculators were buying as much as possible to control the supply," said Gao Wang, an analyst with Beijing Orient Agri-business Consultant Ltd, a leading agriculture and food business consulting company.
Underscoring their appetite for risk, some of the Wenzhou speculators will be heading to Dubai for property bargain hunting over the Chinese New Year holiday in February even after some were burned by the Middle Eastern city state's meltdown in late 2009.
"Most of us have realized that traditional manufacturing industries no longer bring us more profits, so many who used to run factories are switching to stock markets or real estate," said Zhou Dewen, the head of a Wenzhou business association, who is heading the tour. "We think it's time to go and see how is Dubai's economy going as opportunity always follows after the crisis," Zhou said.
For now, economists say, China's planners are likely to confine tightening to technical tinkering to discourage excess lending. They are likely to wait some time before raising benchmark interest rates or cutting back on the government stimulus spending credited with helping revive domestic demand — and creating jobs.
The government has successfully navigated numerous crises using such a piecemeal, gradual approach — including sweeping state industry reforms that slowly but surely put tens of millions of workers out of their jobs during the 1990s.
