An adjustment is already happening in some smaller cities. In Wenzhou, once a boomtown in Zhejiang province, the property market has remained in the doldrums for many months, and rows on rows of apartment blocks in the "ghost towns" of Ordos in the Inner Mongolia autonomous region remain vacant.

To be sure, the demand for apartments in Beijing, Shanghai and other major cities has continued to outstrip supply. Many analysts attribute the strong demand to exceptionally low lending rates, the average rate of a 30-year mortgage taken out by a first-time homebuyer has slipped to below 5.5 percent a year, and an urge to buy now before prices go even higher.

The question in the minds of many economists at this point is what will it take to trigger a massive adjustment in property prices. In Ordos and some other smaller cities, the problem stemmed largely from overbuilding, but the prolonged slump in overseas demand for Chinese exports has already had a devastating impact on the property market in Wenzhou.

The brutality of such an adjustment was vividly demonstrated in the massive destruction of asset values in Hong Kong after the outbreak of the Asian financial crisis in 1997. But the Hong Kong banking system withstood the onslaught of a 60 percent decline in average property prices at least partly because of prudent risk management and timely regulatory measures introduced before the outbreak of the crisis.

As an open economy and with its currency pegged to the US dollar, Hong Kong is subject to global trends. What's more, Hong Kong has always adhered to the free-market principle that market forces must be allowed to run their course. The best it can do is to minimize the risks and introduce measures to lessen the social and economic pain before the economy can regain its balance. Tempering with market forces seldom works.

The author is a senior editor of China Daily. jamesleung@chinadaily.com.cn

(China Daily 11/02/2013 page5)