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Yet another warning sign on Chinese asset bubbles

with 3 comments

Dated 17th July.  This time by Forbes.  Looks like the state government is not willing or able to do anything:

All bubbles burst, messily, so why don’t policymakers act now?

One reason, Sun said, is that many investment projects launched by the state will take three to five years to complete, requiring additional bank financing in 2010 and 2011.

“Therefore, a sudden and aggressive tightening would not only face substantial resistance from local governments, but may also delay the completion of some of the projects and bring immediate and unnecessary non-performing loan problems to banks,” he wrote.

So monetary conditions are likely to stay loose until 2012 or even later, he said.

One conspicuous source of liquidity is a renewed surge in China’s foreign exchange reserves, which jumped $177.9 billion in the second quarter to $2.13 trillion, the PBOC said on Wednesday.

The rise furnished evidence of a resumption of hot money inflows as foreign investors, lured by great big bubbles in the making, found ways of getting around China’s capital controls.


Written by defennder

July 18, 2009 at 11:14 PM

Posted in China

3 Responses

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  1. I am into U.S. equities despite sovereign wealth funds and other mutual funds interests in China.

    I look at it from demographic profiles and the fact that demand for China assets is high now and demand for U.S. assets are relatively low due to financial crisis.

    You see U.S. still got a high fertility rate and net immigration, which means to say that the U.S. working population will continue to grow. Whereas for the case of China, in addition to poor corporate governance, still got a large post war generation reaching senior ages, with single child supporting them in future. As a result, China is still a question mark.


    July 24, 2009 at 3:28 PM

  2. Of course, unless the objective is to catch the rising bubbles. The problem with this is that you don’t know when the party will ends.


    July 24, 2009 at 3:30 PM

  3. Well I don’t want to make any predictions, but I think there is a growing body of evidence that there are both stock and asset bubbles in China waiting to implode. US equities are at record lows at the moment, so I guess it’s a good time to take risks if you know what you’re doing.

    As for dampening rising bubbles, well, yes I agree that it’s hard to tell when it’ll finally burst. But the state government isn’t exactly helping to damp down the bubbles in any way.


    July 25, 2009 at 6:09 PM

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