Monday, February 01, 2010

Central Banker - China's Economy Is Too Hot

I did a post yesterday about China's bubble risk. Nothing official mind you. Just some observations and an anecdote. Today we are getting the word from an official source.

A senior policy adviser to China's central bank said Monday that asset bubbles were a concern for the nations' policy makers, reflecting official unease about the rapid gains in real estate prices, according to reports.

Fan Gang who sits on the monetary policy committee of the People's Bank of China told reporters that surging asset prices were the "the real worry" for the economy, according to a report by Dow Jones Newswires.

Fan also praised recent efforts to rein in excessive liquidity as "good, timely and necessary," even while he downplayed inflation risks, saying gains in consumer prices were unlikely to be a major problem this year because of spare capacity and stable food prices.

In a separate development during the weekend, the mayor of Shanghai said the city plans to raise the minimum wage by 15% and accelerated plans to build subsidized housing.
And enforced higher wages (as opposed to market wages) will help Chinese competitiveness how?

In any case China has yet to undergo the first round of bubble collapse. And the US has not gotten in its second round. I can see a double dip coming this summer. Just in time for election season.

That which is unsustainable will not be sustained. That goes for politics as much as it does for economics. Tea anyone?


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1 comment:

Neil said...

China doesn't need to be more competitive--they've pushed the outer limits on growth through exports. They need to foster a domestic consumer economy. Raising, or instituting, a minimum wage is arguably a good thing to do here, but the potential downside is that it might just shove some workers and jobs into the "grey" economy if there's not a solid pre-existing rule of law. And China (like most of Asia) is predominantly a culture of "rule of relationships", not "rule of law".