China&#39;s asset bubble dependency
?Vested interests want to maintain China&#39;s asset bubble, if not decisive
action, the consequences would be disastrous
New web 】 【 Finance (columnist Andy Xie) powerful interest groups to
China&#39;s macro policy has been stuck in the long run, many disadvantages:
local government as the lifeline of the high land prices; state-owned enterprises do not
expect interest rates to rise; exporters strongly opposed to currency appreciation.
China&#39;s macroeconomic policy has been weakened into psychotherapy
alone a number of verbal statements and technical fine-tuning to frighten the
speculators. At the same time, inflation has been heating up. Unless the Central
Government ruthless determination to make choices, or in the foreseeable future,
China&#39;s economy will suffer a damaging adjustment.
First, with the decline in manufacturing profits and expenses increased demand, the
local government&#39;s financial dependency has been created on the real estate
industry. Once in 20 years time, economic development and investment is the primary
means of financial income. Coastal provinces through the cultivation of
export-oriented industries become rich. But in the past five years, this economic logic
has changed. Erosion of the manufacturing costs big profits for investment, most of
the local government had to provide subsidies. Real estate has become a real source of
income for the government.
Second, the state-owned enterprises enjoy advantages in loans, which makes the rapid
expansion of state-owned enterprises. Most of China&#39;s state-owned bank
debt is owed. Residents and real estate loans borrowed from banks, through the hands
of property developers to buy land from the government the way, the actual final flow
to the hands of government. To maintain low interest rates, which has become the
protection of the state sector (state-owned enterprises and the government) national
policy. Other factors such as inflation, was ignored.
Third, the Chinese exporters are suffering from rising costs and weak global demand
flank. They strongly oppose the revaluation of the RMB. Before the new labor law,
tax rates and more stringent environmental standards that exporters have been full of
complaints. These exporters are still represents half of China&#39;s
manufacturing industry, can influence government policy.
China&#39;s current policy is in effect subsidizing the production sector. The
previous low-wage and low subsidies resource prices. Now, high resource prices and
wages are rising. High land prices and low interest rates have become the backbone of
the state sector, which also reduces the burden on the export sector. High land prices
and low interest rates are actually a disguised tax on the residents families. In essence,
Chinese wages are up a point, but the purchasing power and interest income is
significantly impaired. This situation indicates that the state sector is too large, and its
inefficiency in the pure market economy, can not afford to survive. The plight of
macro actually reflect structural problems.
China&#39;s current monetary policy path expansion and asset inflation in the
short term, this practice of least resistance, and the most comfortable. The main
purpose behind the asset inflation, the government can tax. It is the dream for people
to get rich quickly provide a breeding ground for as long as the market rose, this
policy will receive the welcome. It also can influence the
&quot;insider&quot; exploit the people playing the trick. Over the past few
years, the Chinese government has been beneficial to asset inflation, it is no accident.
China&#39;s asset bubble growth rate faster than ever before. Housing stock,
construction projects and land reserves in the value may be 3 times the gross domestic
product, or about 100 trillion yuan. Seven years ago, they are of marginal value.
Beijing, Shanghai, home value and percentage of GDP, has nearly 1997 in Hong Kong.
Rental income also was similar to Hong Kong. In addition, China has a unique
phenomenon, the housing vacancy, I suspect that the number of 10 million to 20
million or so.
If China&#39;s bubble bursts, it will cause enormous damage on the economy.
However, there are many Chinese people want a bubble, of course, best not to change,
not to expand nor shrink. Chinese government officials really is the best and brightest
people, they actually sustain such a situation, taking into account the size of China, on
a pure market economy countries, this is unthinkable. During this period also cultivate
people&#39;s widespread confidence that the government can get any of it what
you want. However, the market was distorted the longer the greater will be the final
Depends on the current round of tightening credit limit real estate and pressure. The
purpose is to protect the former first time home buyers who buy a house to contain
repeated. Unfortunately, the current price for first-time buyers is still too high. Local
governments did not spend last year&#39;s land sales completed, can continue to
spend. However, when the money spent in a few months later, they will keep the
economy growing? Policy will be relaxed once again it? In the last several rounds of
policy tightening in the property, this kind of thing happened.
The Chinese government&#39;s great assets, should be sufficient to meet the
post-bubble mess. However, if the bubble and then for two years, it difficult to deal
with more. In order to contain the bubble, Beijing must raise interest rates as soon as
possible. Some people worry that interest rates will increase the pressure on RMB
appreciation. This fear may be redundant. RMB is not undervalued. Government
revenue through asset inflation, instead subsidize manufacturing, such as to remove
these subsidies, is equivalent to the exchange rate rose by 20%.
When asset prices return to normal level, China should straighten out their financial
position, and to prevent the foam to reproduce.
First, the government must limit spending. Local governments at all levels of
achievement based on its economic performance, so they always tried to raise revenue.
This lack of urbanization strategy. For large cities, perhaps the Government could be
responsible for the economy. But in other places, the government should only
undertake social functions, rather than economic tasks.
Secondly, it should be unified, simplified tax system. Local governments should not
be entitled to tax incentives, whether direct or indirect. Tax competition among local
governments undermine national tax base, but also led to overcapacity.
Finally, China must strengthen anti-corruption. Economic losses caused by corruption
accounted for 10% of gross domestic product. If the Government can put up the
money received, the Government does not need to rely on high prices of. Government
from the asset inflation game and the interests of low interest rates have also
accounted for 10% of the gross domestic product. If the Government wants this piece
of cake and eat it, we must fight against corruption. ■
The author is director of the Rose Stone consultants, the paper first published in
English, &quot;South China Morning Post&quot; reporter Lu Chen
translation of the new fiscal
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