Chinese banks would be able to withstand a 50 percent decline in property prices, the country’s banking regulator said. Liu Mingkang, chairman of the China Banking Regulatory Commission (CBRC), said that the CBRC had undertaken its most stringent stress test on local banks and found the banks would emerge relatively unharmed from a 50 percent drop in real estate values. “The stress tests do not reflect the CBRC’s view about the property market’s direction, but the results should strengthen the confidence of all banks in implementing the property controls,” Liu said in a television interview with state media. Liu’s comments, which come amid a government campaign to cool a hot property market in China, led Chinese banking shares to rally on Friday. But some analysts warned that the CBRC’s confidence in its banking sector could be too optimistic, though few expect property prices to plunge by as much as 50 percent. China’s property prices have soared since the country’s government enacted a monetary stimulus package to combat the financial crisis. Sensing that surging property values could threaten the country’s economic health and social stability, China’s policymakers have enacted a cocktail of measures to tamp down speculation in property markets and bring down real estate prices. Mortgages and credit to property developers accounts for about 20 percent of bank loans in China. The CBRC earlier this week instructed lenders not to roll over loans and to ensure that loans were repaid on schedule.

A prominent economist in China has suggested that China should purchase US stocks instead of Treasuries. Andy Xie, the former chief Asia economist for Morgan Stanley, said, “The US stock market can be a credible alternative [to Treasuries],” as Washington debates raising the US debt ceiling and the prospect of a US default looms. Xie said that US corporations have reported strong earnings and are garnering significant sales from fast-growing emerging markets. He said he favored energy and agriculture companies that will benefit from rising demand for commodities in emerging markets. Although US stocks aren’t cheap by historical standards, they’re preferable to Treasuries, Xie said in an interview with Bloomberg in Shanghai. He added that a US default could lead to fund inflows in emerging markets and result in inflation in major developing economies such as China and India.

Xie, a former World Bank economist, left Morgan Stanley in 2006 after an email critical of Singapore was leaked to the media. In the email, Xie claimed Singapore’s economic success was largely due to its status as an unofficial money-laundering center for Indonesia. Despite his stormy track record with the investment bank, Xie predicted the US credit crisis, rising inflation in China and tumbling values for Chinese equities. He has argued that the China market is akin to a massive Ponzi scheme and has been been widely criticized by Chinese pundits.

The Manila-based Asian Development Bank maintained its forecast for China’s economic growth, but warned that inflation in the region could rise faster due to high oil prices and supply disruptions stemming from the March earthquake in Japan. The bank also cautioned emerging east Asian economies against easing monetary policy tightening measures due to flagging growth in developed economies. “Economies with fast-rising inflation may need to more quickly exit crisis-related stimulus,” the ADB said in its semi-annual Asia Economic Monitor. “Policymakers should be careful not to overreact to the slowdown in advanced countries, as regional growth remains resilient and inflation a continuing problem.”

The ADB did not change its forecast of 9.6 percent gross domestic product growth (GDP) in 2011 for China. However, the bank said it was likely to cut its GDP forecasts in the future as weaker-than-expected growth in the US and Europe may affect Asia. The ADB estimates that east Asia’s emerging economies will expand by 7.9 percent in 2011 and 7.8 percent in 2012.

The ADB maintained its estimate for 5 percent GDP growth for the Philippines this year.

Indian stocks fell sharply amid concerns that the US government will not agree to raise the debt ceiling in time to avoid a default. The Bombay Stock Exchange Sensitive Index, or the Sensex, retreated by 0.1 percent to 18,197.2 on Friday. However, the benchmark declined 3.4 percent in July, the biggest monthly loss since January, when the Sensex fell 11 percent.

Japan’s industrial production in June rose less than expected, suggesting that the country’s economic recovery after the devastating earthquake may be losing steam. Factory output rose 3.9 percent year over year in June, compared to a 6.2 percent increase in May, according to data from the country’s Trade Ministry. Analysts said that flagging overseas demand and an appreciating yen could threaten corporate profits. However, the Trade Ministry report also indicated that Japanese firms planned to boost output in July and August, suggesting that these companies remain sanguine about demand.

The Trade Ministry data also showed a surprising increase in retail sales in June. Retail sales rose 1.1 percent year over year in June, the first year-over-year increase in retail sales in four months. Sales of machinery (including household appliances) and cars contributed to a 2.9 percent month over month increase in retail sales. Many households bought flat-screen televisions in order to prepare for Japan’s switch to digital television transmission, which was completed this week. Household confidence rose to a three-month high in June and the jobless rate declined to 4.5 percent, the lowest level in more than two years.