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Finance & Economy

China: Economist warns of dangerous asset bubble


Wu Jinglian

Wu Jinglian

Economist Wu Jinglian, one of the mainland’s best-known advocates of market reform, warned yesterday that excess domestic money supply was creating an increasingly unsustainable asset bubble.

Wu, a senior research fellow at the State Council’s Development Research Centre, said the risk of an asset bubble was even greater than it was in Japan before its own bubble burst two decades ago.

“The consequences will be serious if there is any emergent problem that occurs,” Wu said on the sidelines of a financial forum hosted by Caijing Magazine in Sanya, Hainan.

The Japanese asset bubble was fuelled by excessive monetary easing by the Bank of Japan and led to a recession after the bubble burst in the early 1990s.

Other economists have raised concerns about mainland China‘s own money supply. M2, the broadest money-supply measure, which covers cash in circulation and deposits, stood at 94.4 trillion yuan (HK$116.3 trillion) at the end of September, while its gross domestic product in the first three quarters was 35.3 trillion yuan.

“Have you ever seen any country in the world like this?” Wu said, adding that the government was too highly leveraged. “The debt level of the government’s balance sheet is too high as the more notes issued actually means more debts.”

East Asian countries found success maintaining high economic growth with exports, but almost all the export-oriented nations eventually saw excessive money supplies and asset bubbles, Wu said. Japan was merely the first to see its bubble burst.

China is an export-oriented economy, with exports and fixed-asset investment the two main drivers of economic growth.

The People’s Bank of China and the Ministry of Finance have done a good job supporting the bubble, but it is not sustainable, Wu said. Beijing should overhaul its model for economic growth, making domestic consumption a major driver.

“But it will need government’s support and fiscal policies to boost domestic demand,” he said.

Source: SCMP “Economist warns of dangerous asset bubble on mainland”
 

About chankaiyee2

Author of the book "Tiananmen's Tremendous Achievements" about how with the help of Tiananmen Protests, talented scholars with moral integrity seized power in the Party and state and brought prosperity to China. The second edition of the book will be published within a few days to mark the 25th anniversary of Tiananmen Protests All the parts in the first edition remain in the second edition with a few changes due to information available later and better understanding. There are also some changes for improvements of style. The new parts are Chapters 12-19 on events in China after the first edition was published: The fierce power struggle for succession between reformists and conservatives; Xi Jinping winning all elders’ support during his mysterious disappearance for 2 weeks in early September, 2012; and Xi Jinping Cyclone. Chan Kai Yee's new book: SPACE ERA STRATEGY: The Way China Beats The US An eye-opening book that tells the truth how the US is losing to China. The US is losing as it adopts the outdated strategy of Air-Sea Battle while China adopts the space era strategy to pursue integrated space and air capabilities: It is losing due to its diplomacy that has given rise to Russian-Chinese alliance. US outdated strategy has enabled China to catch up and surpass the US in key weapons: Hypersonic weapons (HGV) that Pentagon regards as the weapon that will dominate the world in the future. Aerospaceplane in China’s development of space-air bomber that can engage enemy anywhere in the world within an hour and destroy an entire aircraft carrier battle group within minutes. Anti-satellite (ASAT) weapons, anti-ASAT weapons, stealth aircrafts, drones, AEW&C, etc. The book gives detailed descriptions of China’s weapon development based on information mainly from Chinese sources that the author monitors closely. U.S. Must Not Be Beaten by China! China is not a democracy. Its political system cannot prevent the emergence of a despotic leader or stop such a leader when he begins to bring disasters to people. A few decades ago, Mao Zedong, the worst tyrant in world history did emerge and bring disasters to Chinese people. He wanted to fight a nuclear war to replace capitalism with communism but could not bring nuclear holocaust to world people as China was too weak and poor at that time. If a despot like Mao Zedong emerges when China has surpassed the US in military strength, world people will suffer the misery experienced by Chinese people in Mao era. China surpassing the US in GDP is not something to worry about as China has the heavy burden to satisfy its huge population, but China surpassing the US in military strength will be world people’s greatest concern if China remains an autocracy. US people are of much better quality than Chinese people. What they lack is a wise leader to adopt the correct strategy and diplomacy and the creative ways to use its resources in developing its military capabilities. I hope that with the emergence of a great leader, the US can put an end to its decline and remain number one in the world. China, US, space era strategy, air-sea battle, space-air bomber, arms race, weapon development, chan kai yee

Discussion

One thought on “China: Economist warns of dangerous asset bubble

  1. Unfortunately for humans a balance has not been found whereby the excessive shackles of central planners of communism and excessive exploitative grip of greed in monopolistic businessmen in capitalistic system are balanced.The Gandhi philosophy of let thousand rose buds bloom all over never gained any traction because it did not appeal to animal instinct in humans.If the rich in free world should realise that if there are lot of people living in comforts(the so called middle class) then their super riches are likely to last with them longer.But they do not want to take such route by paying their help more than living wage etc.That weakens the society and ultimately demonslike Hitler or Stalin etc will take over leadership of angry masses toppling the whole edifice that is not well balanced.There is no escape from this human tragedy .We will need many more births of Jesus and Gandhi and yet the problem will live in one form or other.

    Like

    Posted by kj shah | December 22, 2012, 10:38 am

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