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IMF: No China Asset Bubble, Healthy Growth to Continue
By Economic Forecasts & Opinions
Olivier Blanchard, chief economist at the International Monetary Fund (IMF), talks with Bloomberg this morning about the prospects for an asset bubble in China. Blanchard, speaking from Washington, also discusses the impact of sovereign debt on global economic growth .
No China Bubble Concern
While Blanchard declined to comment on the situation at Greece due to ongoing discussion between the IMF, the European Union (EU) and the Greece government, he did offer some insight as to the "China bubble" suggestion made by the likes of Mr. Jim Chanos (link below).
Here is Blanchard’s response when asked if the IMF sees an asset bubble about to burst in China,
"We do not think so. For the most part, the growth in China, which has been very high, and is expected to continue, has been a healthy one."
He indicated that there could be pockets of bubbles; however, since the Chinese government is watching closely and ready to intervene when necessary, the IMF is “not “terribly concerned about any major asset bubble in China”.
On Yuan Revaluation
Blanchard noted the strategy of China is to increase domestic demand levels and decrease savings rate, which he believes is too high. As Beijing implements this process in order to re-allocate resources to the domestic sector, the Chinese currency--yuan or renminbi-- will then be allowed to appreciate. He believes this is what we are going to see in the next few years.
‘Fiscal Consolidation' A Priority
Blanchard said fiscal consolidation must become a priority for heavily-indebted advanced economies but that is likely to further weigh on demand, and thus on economic growth. This has manifested more intensely at Greece, but eventually all countries will go through a similar process.
My Thoughts
In its newly released its World Economic Outlook today, the IMF forecasts for global growth was nudged up to 4.2% this year. China will grow the fastest --by 10% this year-- and 9.9% in 2011.
However, over the past week, Beijing announced measures aimed at cracking down on property speculators amid an 11.7% rise in urban home prices last month from a year earlier, its fastest gain in five years.
China cynics such as Mr. Jim Chanos have argued that China's lending spree during the financial crisis has pumped too much liquidity into real estate, and compares China’s economy as “Dubai times 1,000”.
Among the counter-arguments, of which I subscribe, China's growing wealth feeds a long-term demand as the country goes through the urbanization process. Furthermore, regulators are implementing measures limiting the downside of any bubble. These views are basically supported by the IMF and Blanchard as seen in this interview.
The IMF has for years urged a rebalance where advanced countries, such as the United States, may need to weaken their currencies to boost exports, while emerging economies like China need to allow their currencies to rise, curbing exports.
There is a growing consensus among economists that such a shift will not have significant impact on the trade imbalance. That is the main reason why J.P. Morgan economists estimate that a 10% trade-weighted appreciation in the yuan would reduce China's overall exports by only 2%.
However, in a global race to increase countries’ export advantage to help recovery, most of the attention has focused on the need for China to appreciate the yuan to help drive Chinese domestic demand.
From all indications, the most likely scenario is that Beijing will allow the yuan to gradually appreciate, albeit very modestly. The adjustment is unlikely to meet expectations as critics in the U.S. argue that the yuan is as much as 40% undervalued against the dollar. This no doubt will escalate global tensions and a possible trade war between China and the U.S.
The global economic recovery has drawn support from a swift rebound in China. It would be advisable for U.S. policy makers to weigh the long-term effect against the short-term benefit, since currency exchange rates aren't the only factor to consider when it comes to China’s trade surplus.
In light of the coming “fiscal consolidation” among the advanced economies as warned by Blanchard, China’s growth prospect--among the best in the world--with its relatively low debt ratios, could certanly be one region with greater stability.
There will be some pockets of corrections in the medium term as Beijing tries to balance growth and inflation, while curbing potential bubbles--as expected in any growing economy. Nonetheless, these pullbacks should prove to be good entry points for long term investors.
Note: The Bloomberg Blanchard inteview is available at YouTube here.
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"China's growing wealth feeds a long-term demand as the country goes through the urbanization process."
I think this is a false thesis as it seems the wealth is being accumulated by small percentage of population. In the end, widening wealth gap in a communist state could end up with political consequence.
The silent Coup d’ etat of the United States of America
The silent Coup d’ etat of the United States of America is nearly complete. Congress is giving nearly unlimited authority to the private Federal Reserve Bank ("Fed"), owned by the big banks, to regulate themselves. They are then giving the Fed authority over most every publicly traded company with the simultaneous unconstitutional authority to print money to be used to purchase trillions of dollars of stocks and to monetize the Debt of the United States government. They are also working to subordinate the Fed and Congressional authority to the globalist/fascist International Monetary Fund. Once this occurs which is happening in Congress, the Coup will be done. The international globalist fascist bankers will have conquered the United States of America and the ultimate act of treason will have been performed in plain sight of an unsuspecting dumbed down American public....
Read more here:
http://www.facebook.com/wgpitts?ref=profile#!/note.php?note_id=385633773339
The IMF wouldn't recognize a bubble if handed to them on a platter ...
China will keep growing. The 1.4 billion people there are just like all of us. Given the right conditions they will choose to self-actualise. As long as they do not become expansionist they can do as they like, within reason. Visiting business people should respect the local mores. "When in Beijing..."
Erm, China faces a rapidly aging population, thanks to its totalitarian "one child policy", and lopsided cohorts with far too few women...because they were killed as babies in favor of boys.
China is trying hard to get rich, but it isn't yet, and won't make it before it becomes elderly. Demography rules all other forces here. The burst of the bubble in the short run will probably lead to a resurgence of brutal totalitarianism to counteract centrifugal forces that are always at work in China. It is a not a homogenious country by any means, and the ruling communist party knows this. One party rule and unity of command of the military and police keeps it together.
What exactly is the yuan appreciation stuff about? Doesn't Ben B take care of depreciation of the dollar, resulting in the same?
Maybe Fed is wiser than we all thought / are ?! o_O
China being corrupted does not prevent them from developping.
A thought to be kept in mind when claiming that some third world countries are in such state because of their corruption.
Of course, this train of thought forces to look for real causes of developpment.
steve from virginia "China has no equal in corruption". Proven time and time again.
See the recent WSJ articles summarizing US company efforts selling trying to sell there.
Some third party data (IMF is a frat party) would be useful.
Olivier Blanchard is either a blatant liar or a retarded fucking clown!
Perhaps even a bit of both......
IT'S A BUBBLE!!!!!
China is following the USA path of resource wastage and driving prices higher to enable credit creation and provide 'more returns' to its political elite.
China has no equal for corruption, not even Wall Street. Chanos has more credibility than the IMF. That there is a bubble indicates that China's productivity is really 'so- called productivity'. Their growth is a mirage. The end of productive commerce is always marked by the rise of finance and speculation. In this regard, China's property bubble is no different from the current USA sovereign credit bubble.
Watch both burst at the same time. If the outcome would not be so tragic I would walk down to the IMF headquarters and laugh at the economists leaving the building in the evening. (Then ... walk down to the White House and the Treasury and do the same thing.)
Corruption on the parts of the world- wide establishment has made the incompetent IMF instantly 'credible' again. If not for the aggregate greed and stupidity of the financier- class the IMF would be out of business already. Grrrr!
i think he is right . the noise on zero edge of a china bust for the last few days has been misplaced
china is the usa bank.. the buyer of resources world wide. number 1 in autos,, high speed trains . building a huge infrustructure for a raising income class ,
has room to expand .. the people , the resources th debt level of the people is nil compared to usa .
my opinion and a five spot will get me a taco and drink.
my stand for the last ten years that china is the coming world superpower .
so sorry for three junks
rephrase
five spot gets me two tacos and a drink
you can be right as rain (and i think you are) on china being the next world power. so was the u.s. in 1930 and it didn't help for, what, twelve years? the previous two precedents for a single country having as much foreign reserves, relative to world gdp, as china now are the u.s. in 1929 and japan in 1989. just saying.
This guy saw the US bubble comming? Just to know how good he is at this.
Show me the numbers that show a proportionate increase in Chinese spending ability attributable to real wealth creation relative to that 11.7% rise in real estate prices and I'll believe there's no bubble in China.
Regulators can't do shit to "limit downside" if the bubble's already been blown.
As always, think of the opposite whenever these guys are speaking.