Tags: Greenspan | bubbles | brewing | Chinas

Greenspan: Bubbles Surfacing in China's Economy

By    |   Wednesday, 18 December 2013 07:43 PM

Bubbles are surfacing in China's economy, as the government seeks to free up the country's financial system, shifting it to a model more like that of the United States, says former Federal Reserve chairman Alan Greenspan.

There is "no doubt" bubbles are showing up in China, Greenspan said Monday in video comments for a conference in the country, Taiwanese news service Want China Times reports.

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Economic development naturally leads to bubbles, and government policies play a role, Greenspan says. Bubbles sparked by government policy can bring about economic collapse, he adds.

Sustaining a stable banking system and a reasonable debt-to-capital ratio is important, Greenspan says. He says China must tread slowly when it comes to financial innovations, particularly in introducing derivatives.

China's banking system is turning more complex as it grows, Greenspan says. And as the system comes to more closely resemble the U.S. model, China' system will suffer some of the same problems experienced in the United States, he says.

Meanwhile, China is approaching "the level of income at which many other rapidly growing
developing countries experienced precipitous growth slowdowns, the so-called middle-income trap," Yukon Huang, senior associate at the Carnegie Endowment for International Peace, writes in The Atlantic.

"Going forward, if China hopes to evade this 'trap' and maintain growth of 7 percent for the rest of the decade, it will have to address its growing debt problem and significantly increase
productivity."

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Bubbles are surfacing in China's economy, as the government seeks to free up the country's financial system, shifting it to a model more like that of the United States, says former Federal Reserve chairman Alan Greenspan.
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Wednesday, 18 December 2013 07:43 PM
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