China is warning about a coming explosion of bubbles in the global financial market and in its own real estate market, which turned to be the very real consequences of the unprecedented injection of cheap money into the world economy, says VZ.
The financial regulator of China made a statement about two price bubbles at once. First, the country's regulator said, the rally in global stock markets resembles a bubble that will eventually burst and stocks will go down.
"Financial markets are trading at a high level in Europe, the US and other developed countries, which is contrary to the real economy," said Guo Shuqing, the Head of the China Banking Regulatory Commission (CBRC). This statement has led to a fall in Asian stock indexes, European stock futures and commodity prices. The US stock indexes also went down in the first half of Tuesday's trading. Investors are under the impression of the recent sell-off in the bond market.
A second bubble is brewing in China's own real estate market: many continue to buy homes as investments or for speculative purposes, which is "very dangerous," the Central Bank of China warns. The authorities have introduced a new mechanism for mortgage lending, limiting the issuance of loans to slow down the surge in demand. However, housing prices in the secondary market still jumped by the most in a year and a half.
China is ready to tighten its monetary policy, which was not as soft as in the United States and Europe. Beijing may try to cool the stock markets and the real estate market. The problem is that the tightening of the screws of the PRC can provoke a new crisis. And all that can fall onto our heard, when the world has not even slightly recovered from the coronacrisis.
If the government of China does nothing, bubbles can suddenly burst (like the US mortgage bubble in 2008). But if they take action too soon, it can harm the global economy even more. That is paradox the paradox.
Although, China dealt well with the recession of 2008-2009 and gained more financial success. However, the weakness of the United States back and the recent euro zone relapse the Asian had turned to the economic downturn in 2012. And real estate was one of the fields at risk. But as it turned out later, Chinese economy stabilized. Several local bubbles in Shanghai, Hangzhou and Beijing were not serious enough to destroy the whole market.
But then 2020 came. The world economy is in a deep crisis, and China throws more fuel to the fire. As reported by Asia Times Financial, September came with a serious price decline in the Chinese market. 22 cities had a price drop. At the end of the year developers struggled to achieve sale targets. The most negative forecasts are predicting the fall to the level of 2003.
The regulator's statement seems more like a scarecrow, because neither the Fed nor the European Central Bank are concerned with the overheated stock and housing markets. Beijing does not like such indifference.
Some experts expect many years of rising prices in the housing market and in commodity market. But it is always better to be aware of changes that can affect the whole world.