World Bank economists yesterday warned about the risks of asset bubbles in China even as the government tries to hold back excessive lending and keep prices stable.

Asset price inflation, or increases in housing prices in particular, is potentially "very dangerous" for China because they are self-reinforcing, made possible by "very cheap credit", said Hans Timmer, director of the development prospects group at World Bank.

"Asset price rises bear more risks (than consumer inflation)," he said at a press conference yesterday in Beijing.

"If the price in a grocery store goes up, then demand comes downs; but if the housing price goes up, then actually demand might increase because people expect further increases," he said. "This is a much more dangerous phenomenon."

Housing prices in 70 major Chinese cities increased by 7.8 percent year-on-year in December, the fastest pace in 2009, according to official data. But many people complain that price rises are much higher than indicated in the index and have become unaffordable.

Economists, meanwhile, are worried about "house price bubbles" bursting, which could affect the balance sheets of banks and the health of the overall economy.

"I can't say there are (asset) bubbles at the moment," Timmer said. "But there's a risk … it is an area where you have to keep your eyes peeled."

Dong Yuping, senior economist at the Chinese Academy of Social Sciences, said: "Although house prices rose very fast in some big cities last year, it is hard to say if bubbles have already formed. There are few widely-agreed standards for us to decide whether there are bubbles or not."

He said, however, that policymakers must be cautious. "If house prices continue to rise faster than people's income growth, the risk of bubbles would be higher."

Timmer said the Chinese government has taken appropriate measures to keep the risk under control. "The first step is to recognize this is a potential issue and be willing to act, and the Chinese government does both."