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China Economic Insight Series(25)
2009-10-07DONG,Ai-Ying
목차
요약
Is China inflating a new asset bubble?
Bank lending increased by more than 7 trillion yuan in 1H 2009. While the surge in the
money supply helped spark an economic recovery in 2Q, it has also raised concerns that asset bubbles are being reflated.
Although a large portion of the bank loans are designed to support the government’s
investment, speculation on stock or real estate market by private businesses is increasing due to the lack of investment opportunities in real business activities and accomodative credit conditions.
Futhermore, the companies are increasingly obtaining bank loans by using commodities as collateral, and then using the borrowed funds to speculate in the stock or real estate markets. The growing inventory of commodities used for this type of speculation has led to surging Chinese raw material and commodities imports in 1H, which in turn has led to rising global commodity prices.
During 2Q, there were signs that global hot money has started to flow into China again, and this trend is likely to continue in light of China’s strong economic recovery, the widening interest rate gap and the possibility of a weakening of the dollar. Inflows of hot money will lead to further deterioration in conditions for domestic excess liquidity.
Although the government fears inflating a new asset bubble, it must also consider the
fact that a withdrawal of liquidity could lead to an abrupt economic slowdown. The pursuit of a rapid economic recovery, employment improvement and social stability seems to be hampering the Chinese government’s actions to prevent asset bubbles from forming.
The government is unlikely shift its policy to tightening measures, and its policy adjustments
are expected to be limited to fine-tuning.
In past experience, the inflation cycle in times of excess liquidity has spread according
to the following path: stock market → real estate market → overall prices. The stock market has surged by 70% since the beginning of the year, and real estate prices have been growing YoY since June. As the inflation cycle is now at the beginning of the second stage, accelerating inflation for overall prices may be imminent.
Bank lending increased by more than 7 trillion yuan in 1H 2009. While the surge in the
money supply helped spark an economic recovery in 2Q, it has also raised concerns that asset bubbles are being reflated.
Although a large portion of the bank loans are designed to support the government’s
investment, speculation on stock or real estate market by private businesses is increasing due to the lack of investment opportunities in real business activities and accomodative credit conditions.
Futhermore, the companies are increasingly obtaining bank loans by using commodities as collateral, and then using the borrowed funds to speculate in the stock or real estate markets. The growing inventory of commodities used for this type of speculation has led to surging Chinese raw material and commodities imports in 1H, which in turn has led to rising global commodity prices.
During 2Q, there were signs that global hot money has started to flow into China again, and this trend is likely to continue in light of China’s strong economic recovery, the widening interest rate gap and the possibility of a weakening of the dollar. Inflows of hot money will lead to further deterioration in conditions for domestic excess liquidity.
Although the government fears inflating a new asset bubble, it must also consider the
fact that a withdrawal of liquidity could lead to an abrupt economic slowdown. The pursuit of a rapid economic recovery, employment improvement and social stability seems to be hampering the Chinese government’s actions to prevent asset bubbles from forming.
The government is unlikely shift its policy to tightening measures, and its policy adjustments
are expected to be limited to fine-tuning.
In past experience, the inflation cycle in times of excess liquidity has spread according
to the following path: stock market → real estate market → overall prices. The stock market has surged by 70% since the beginning of the year, and real estate prices have been growing YoY since June. As the inflation cycle is now at the beginning of the second stage, accelerating inflation for overall prices may be imminent.
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