Tags: china | bubble | burst | economic

China Aims to Avert Collapse Amid Lofty Expectations

By Dan Weil   |   Tuesday, 12 Jan 2010 08:23 AM

Even China’s own government officials are now worried about a bubble brewing in the world’s third biggest economy.

Government researchers estimate that the economy may grow as much as 16 percent this year, pushing inflation higher and risking a bubble in the real estate market, Bloomberg reports.

The researchers say the government must withdraw its stimulus to keep the bubble from bursting.

“If the government continues with the same strength of macro-economic stimulus as in 2009, there will be notable economic overheating in 2010,” Yao Zhizhong and He Fan, economists with the Chinese Academy of Social Sciences, said in an article published in the official China Securities Journal.

The government adopted a $586 billion fiscal stimulus package last year, and the central bank loosened monetary policy.

Already the central bank has started to reverse its stimulus, guiding three-month bill yields higher for the first time since August.

China also has raised the proportion of deposits that banks must hold in reserve, in the clearest sign yet that it has started to tighten monetary policy with its economy roaring back to the brink of overheating.

Yao and He also are concerned about China’s exploding trade surplus.

The country’s exports jumped 17.7 percent in December from a year earlier.

“The export rebound will add significant momentum to China’s growth, contributing about 7.5 percentage points to growth in GDP,” Yao and He wrote.

The two government economists aren’t the only ones concerned about a bubble in China. Legendary short seller James Chanos is betting on a collapse there.

“Bubbles are best identified by credit excesses, not valuation excesses,” he said recently on CNBC.

“And there’s no bigger credit excess than in China.”

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Even China s own government officials are now worried about a bubble brewing in the world s third biggest economy. Government researchers estimate that the economy may grow as much as 16 percent this year, pushing inflation higher and risking a bubble in the real estate...
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2010-23-12
 

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