buiding workers

China's policy makers are likely to find it challenging to tame the country's overheated real-estate market, analysts said, despite the strong message sent by the government's unexpected interest-rate rise this week.

Major economic data scheduled for publication Thursday are expected to show still-fast Chinese growth and a pickup in inflation—conditions that may have given the central bank room to push through the rate increase this week. Chinese policy makers have shown increasing concern that a property bubble risks both destabilizing the economy and creating social tensions among urban Chinese priced out of the market.

Growth in China's gross domestic product was predicted to have eased to an annual rate of 9.5% from a year earlier in the third quarter from 10.3% in the second quarter, according to the median forecast of 14 economists polled by Dow Jones Newswires. China's consumer-price index likely rose 3.6% from a year earlier in September, according to the poll, up from a 3.5% gain in August.

In general, the data are expected to confirm the picture of an economy that has cooled only modestly despite a series of government policies this year aimed at slowing growth. Previously released figures showed nationwide property sales rebounding in September for the first time since April, rising 16.6% from a year earlier, with prices also picking up again.

That seemed to indicate that China's previous administrative measures aimed at the property market, such as raising down-payment requirements, have had only a limited effect in pushing down prices and cooling sentiment.

The property market rebound may have been one of the triggers for the People's Bank of China to announce Tuesday its first increase in benchmark interest rates since December 2007.

The move took global markets by surprise, sparking a sell-off in stocks, commodities and emerging-market currencies as investors lowered expectations for Chinese growth and demand.

"Property could be under a lot of near-term pressure. The remaining real demand in the market now is interest-rate sensitive and developers could panic-sell as supply increases in the fourth quarter," Morgan Stanley analysts said in a research note.

Analysts and property developers said the quarter-percentage-point rate increase itself is too small to significantly curb mortgage demand or make borrowing costs unbearable for still cash-rich developers.

Zhang Gang, an analyst at Southwest Securities, said: "The magnitude of the interest-rate hike is not that big, and investors believe that it may not have such an adverse impact on investment." However, the market outlook could deteriorate dramatically if Beijing signals it is embarking on an extended monetary tightening cycle or if it moves to roll out even harsher measures such as a real-estate tax.

Shares of China property developers fell sharply Wednesday following the surprise policy move announced Tuesday night. Developer China Vanke ended 6.1% lower and Poly Real Estate Group dropped 7.8%. Despite the decline in the property shares, the Shanghai Composite Index ended 0.1% higher at 3003.95.

A project director at a Hong Kong-listed property developer, who declined to be identified, said sales in China have been so strong in the past few months that an interest rate rise "may not be a barrier for consumers at all." But the rate increase could make borrowing more expensive for developers themselves, who were already facing increasing difficulties in getting loans, he said.

"The government's moves on property-tightening remain unpredictable, so banks want to avoid lending to projects that may be too risky and vulnerable to government measures," the Hong Kong project director said.

Johnson Choo, vice president of investor relations at Zhengzhou-based developer CentraLand Ltd., said real-estate companies may have to find sources of funding other than banks in the new climate. "Developers who need funds will increasingly consider other means," he said.