In his most recent SCMP article, Dr Andy Xie discussed the property market bubble and why he thinks that China is cooling and not deflating it.
Here are some highlights:
The property market isn’t liquid like the stock market. The clampdown on liquidity has hit the equity market first, because it is easier to meet cash calls though stock liquidation. The odds are that the pressure on the stock market will continue.
The Chinese government depends on the property bubble for revenue. It will never give up on it voluntarily. Periodic clampdowns are necessary to slow the market, lest it overheats and blows up. The current measures are no exception.
While the government wields many unconventional tools at home, the renminbi’s soft peg to the dollar remains the only external anchor. It drives internal demand for the Chinese currency despite all the risks in the financial system and asset market. This is why the US Federal Reserve’s policy decisions have such an impact on China’s asset prices.
On the other hand, the peg has given the dollar unusual power, as 900 million Chinese are producing goods priced in dollars. The US federal budget deficit of US$3.1 trillion for 2020 has not destroyed the dollar’s value.
As American politicians have tasted the benefits of going big – giving out money without consequences like the dollar crashing or interest rates surging – they can be expected to keep doing it.
The world is experiencing the biggest asset bubble in history, centred around the yuan-dollar linkage. The US stock bubble is likely to amount to about US$30 trillion, and China’s housing bubble is about twice that. While China has had the sense to sustain its bubble, will America? Washington could sign one big stimulus bill too many and bring an end to the party.
Two decades ago, the US chaperoned China into the World Trade Organization and created this world of cheap stuff and asset inflation. It would be poetic justice for the Americans to burst the bubble.
Read the rest of the article here.
Dr Andy Xie 謝國忠 is a renowned Chinese economist based in Shanghai who has been named one of the “50 Most Influential Persons in Finance” by Bloomberg.
Andy Xie’s skill and has been tried and tested through the years. He is one of the few economists who has accurately predicted economic bubbles including the 1997 Asian Financial Crisis and the more recent subprime meltdown in the United States.
He joined Morgan Stanley in 1997 and was Managing Director and Head of the firm’s Asia/Pacific economics team until 2006. Before that, Andy spent two years with Macquarie Bank in Singapore an associate director in corporate finance and five years as an economist with the World Bank. Dr Andy Xie is currently a director of Rosetta Stone Advisors.
Dr Xie earned a PhD in economics in 1990 and an MS in civil engineering in 1987 from the Massachusetts Institute of Technology.