Cars pass by a housing block in Binzhou, Shandong province, Feb 4, 2016. [Photo/IC]

If the asset bubbles are not deflated, China's economy cannot continue to grow and its financial market will face a huge risk. For example, housing prices in the first-tier and some second-tier cities rose sharply in the first half of this year, which "land speculators" used to their utmost advantage.

The property bubble is largely related to the People's Bank of China's excessive credit expansion. In Shanghai, Nanjing and Xiamen, prices of newly built housing units in June increased more than 30 percent year-on-year, and housing prices in Shenzhen jumped 47 percent year-on-year.

Although an unprecedented real estate boom was seen in the first half of this year with housing sales reaching at 640 million square meters, the year-on-year housing inventory actually increased instead of decreasing. By the end of June 2015, the housing space for sale stayed at 657 million square meters.

But despite the upbeat property market in the first half of this year, residents couldn't find enough investment channels for much of the money in their hands. It seems the property market boom in the first half was the consequence of speculation by using banks' financial leverage. Bank loans in China during the first half of the year rose by 753 million yuan ($113.5 million) and the social financing increased by 975 million yuan, both record-high figures. What's more, housing sector loans increased to 295 million yuan, 262 million yuan of which was mid－to long-term loans, accounting for nearly 40 percent of the entire bank loans in the first half of the year. This is unprecedented in China.

This also means China's property market boom and growth in the first half was generally the consequence of over-expanded bank loans. Such huge amounts of bank loans flowing into the property market is fine when housing prices are increasing. But if housing prices fall after the real estate sector's ongoing periodic adjustment, many problems will arise. At present, China faces the problems of excessive debts owed by local governments, enterprises and individuals. And if the problems reach extremes, it will be very difficult to solve them.

When all social funds flow into the real estate market as speculative money, they not only veer away from the real economy but also push up asset prices comprehensively. And a GDP growth driven by fast rising asset prices will give rise to huge hidden perils and risks for the economy. This form of economic growth is not only unsustainable but also could cause the asset bubbles to burst at any time. This is the fundamental reason why the meeting of the Communist Party of China Central Committee proposed to control asset bubbles.

In conclusion, we can say the Chinese economy did not ease the downward pressure and was mainly fueled by the real estate and rising prices in the first half of the year. Of course, economy cannot sustain itself in this way. If China's central bank tightens its monetary policy to some extent, the real estate market may undergo a real periodic adjustment. If this happens, economic growth is very likely to feel a downward pressure and China's economic situation would not look so cheerful in the second half of the year. And the authorities need courage and wisdom to deal with this dilemma.

The author is a professor at School of Economics, Qingdao University.