China appears being on track for an ASSET BOOM, BUBBLE AND BUST that may take 3 years to play out and probably will not be thwarted by tighter economic policy, Citigroup Inc. economists said.
The process will begin in the residential property market before spreading to commercial real estate and ultimately to stocks, the Citigroup economists led by former Bank of England policy maker Willem Buiter said in a report. It may take as long as two years for the asset bubble to form and at least three years for it to burst, London-based Buiter and Shen Minggao in Hong Kong estimated.
There is no policy in China about the threat of overhearing in the financial and real economy and is not doing enough to prevent the creation of bubble.
China’s economic growth quickened to 10.7% last quarter, helped by a 4 trillion yuan, ($586 billion) two-year stimulus plan for railways, airports and homes. Property prices in 70 cities climbed 10.7% from a year earlier in February.
The Shanghai Composite Index of stocks gained 80 percent last year and is valued at 32 times reported earnings, compared with 52 times at its peak in October 2007 and the S&P’s 500 Index’s 19 times.
Higher interest rates and an appreciation in the yuan are necessary to prevent the economy from overheating further. China has raised banks’ reserve requirements twice this year.
Few politicians have been successful running against asset booms and bubbles.
The process will begin in the residential property market before spreading to commercial real estate and ultimately to stocks, the Citigroup economists led by former Bank of England policy maker Willem Buiter said in a report. It may take as long as two years for the asset bubble to form and at least three years for it to burst, London-based Buiter and Shen Minggao in Hong Kong estimated.
There is no policy in China about the threat of overhearing in the financial and real economy and is not doing enough to prevent the creation of bubble.
China’s economic growth quickened to 10.7% last quarter, helped by a 4 trillion yuan, ($586 billion) two-year stimulus plan for railways, airports and homes. Property prices in 70 cities climbed 10.7% from a year earlier in February.
The Shanghai Composite Index of stocks gained 80 percent last year and is valued at 32 times reported earnings, compared with 52 times at its peak in October 2007 and the S&P’s 500 Index’s 19 times.
Higher interest rates and an appreciation in the yuan are necessary to prevent the economy from overheating further. China has raised banks’ reserve requirements twice this year.
Few politicians have been successful running against asset booms and bubbles.
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