Is China in an asset bubble Yes or no Why or why not (Particularly real estate bubble) - Assignment Example

College: Is China in an asset bubble? An asset bubble comes into being when specific asset es’ prices become over-inflated because of such asset(s)’ excessive demand as a vehicle of investment. The prices soar quickly within a short time period while the underlying demand for such an asset or product does not support it. Supply shortage and/or a money supply over-expansion aggravate an asset bubble but demand-pull inflation account for majority of the modern asset bubbles (Amadeo Para 1). According to Fan Gang, the central bank advisor, China is one of the emerging markets that are facing commodity and property market bubbles’ risks.

Fan Gang joined the regional officials in expressing their concern over the surging prices of assets (Leung & Wong Para 1). According to Forsythe and Hamlin, there is a sprout of empty buildings across the nation as firms with access to 1.4 trillion dollars- given in new loans in 2008- build skyscrapers. This has led to the Chinese property’s market bubble. James Chano, the hedge fund manager, says that there is a monumental asset and fixed asset, including real assets, bubble in China right now.

He adds that deflating such an issue will be quite difficult at best (Forsythe & Hamlin Para 4). The Chinese government, since October 2010, has increased asset bubbles three times. This suggests fears of a shaping asset bubble and high inflation. China is highly dependent on oil and her growth rate is higher than that of Japan. If the worldwide prices of oil continue rising, China could be in some serious trouble. Moreover, there are numerous IPOs (Initial Public Offerings) in China with ample foreign investors wanting to invest in them.

This move could only be fueling the growth of asset bubbles (Zhou 79). Conclusively, a serious market bubble is looming in China if the government does not take effective measures to contain it. Since 2006, economists and analysts have predicted a large asset bubble and this has increased with time. Works CitedAmadeo, Kimberly. Asset Bubble. 2005. 27 April 2012, Forsythe, Michael and Hamlin, Kevin. China’s Real Estate Bubble Causing Growing Concern. Bloomberg News. 14 February 2010. Web 27 April 2012, Leung, Sophie and Wong, Chia-Peck.

China Faces Asset-Bubble Risk, PBOC Adviser Fan Says (Update 2). Bloomberg. 18 November 2009. Web 27 April 2012, Zhou, Qingyuan. Applied Economics, Business and Development: International Symposium, Isaebd 2011, Dalian, China, August 6-7, 2011, Proceedings. New York: Springer-Verlag Inc, 2011. Print.Top of FormBottom of Form