It's Simply Bubble-licious: •China Faces Dangers of Asset Bubbles as Economy Expands

As a % of GDP, no one, anywhere, is spending as much as China to compensate for a HUGE drop in exports, in an attempt to spike domestic consumption.

China is phenomenally bubble-tastic.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a4onPeaW_u20&pos=4

China Faces Asset-Bubble Risk, PBOC Adviser Fan Says (Update1)
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By Sophie Leung

Nov. 18 (Bloomberg) -- China is among the emerging markets facing risks of property and commodity market bubbles, central bank adviser Fan Gang said, joining officials from the region in expressing concern about surging asset prices.

A “double-digit” economic growth rate wouldn’t be good for China, Fan, who heads the National Institute of Economic Research, said at a business conference in Hong Kong today. Chinese gross domestic product may be able to climb 8 percent to 9 percent next year, he also said.

Fan is the latest voice to indicate the seeds of the next financial crisis may be being laid in Asia in the wake of liquidity injections by the world’s central banks. China’s government has encouraged a $1.3 trillion credit boom this year, helping growth accelerate while at the same time aiding an 81 percent climb in the Shanghai Composite Index of stocks.

Emerging economies “might overheat and experience financial turmoil,” Bank of Japan Governor Masaaki Shirakawa said in Tokyo Nov. 16. Liu Mingkang, China’s top banking regulator, said the day before that low U.S. interest rates and the dollar’s depreciation present “new, real and insurmountable risks to the recovery of the global economy.”

World Bank President Robert Zoellick said last week in a Bloomberg Television interview that “given the pace of recovery in East Asia, you could start to see some asset bubbles.” He added that there will “be a need” to consider raising interest rates and taking other steps to restrain credit.

Accelerating Growth

China’s economy grew 8.9 percent in the third quarter from a year earlier, the fastest pace in a year, as stimulus spending and record lending growth helped the nation lead the world out of recession. The median projection of economists surveyed by Bloomberg News is for GDP to jump more than 10 percent in the final three months of 2009.

Fan, the academic member of the People’s Bank of China’s monetary policy committee, told property developers at a business conference in Hong Kong today that while the Chinese property market isn’t “crazy,” there is excessive speculation.

High savings are fueling that speculation, Fan said, urging consideration of taxes on luxury properties. Levies are important to balance demand, he said.

China’s southern city of Shenzhen is “a pioneer” by introducing a property tax, Fan said.

Consumer-price inflation isn’t likely in coming months, with stable food prices providing a restraint, Fan also said.

Fan said that China must continue its stimulus measures in 2010 to sustain growth, even as he rejected the prospect of a double-dip slowdown in the expansion. The U.S. may see a renewed slump, he also said.

Policy Stance

China should maintain a “moderately loose” monetary policy next year as government stimulus wanes and private investment and external demand remain weak, the State Information Center said Nov. 16.

The world’s third-largest economy has countered a 12-month slide in exports by rolling out a 4 trillion yuan ($586 billion) stimulus package. Much of it is focused on investment, including the building of roads, airports and railways.

Record lending this year and inflows of cash from investors betting on yuan gains has added to the risk of asset bubbles in stocks and property. Home prices in 70 major Chinese cities climbed 3.9 percent from a year earlier in October, the most in 14 months, the government reported Nov. 10.

To contact the reporter on this story: Sophie Leung in Hong Kong at sleung59@bloomberg.net
Last Updated: November 18, 2009 00:18 EST