Andy Xie: China about to go bust
May 10, 2007
By Ken Worsley
Former star Morgan Stanley economist Andy Xie has described his fear of an imminent stock market crash in China in a recent interview with Reuters, saying:
I think it’s going to be bust very soon…People will be surprised. When the end comes, it’s going to be pretty bad.
But how bad is it now? In an article published at the South China Morning Post on April 18, Xie wrote:
College students are putting their tuition money into the market…stroke-stricken retirees get wheeled into branches of securities firms to trade.
As Matt as the Discursive Monologue points out, “When the Average Joes begin trading stocks, the mania is approaching a danger level.”
I couldn’t agree more. While Xie says that Chinese government may not be trying to slow down markets due to a fear of political backlash, Discursive Monologue writes, “I would suggest that a small, anticipated political backlash is insignificant compared to the ineluctable bust and suffering that follows a fiery mania like this.”
This is very true. However, I’m not sure exactly what the Chinese government could do to slow down the overheating in its equity markets. Governments in general seem very bad at easing out of these situations, though one is tempted to think that looking at the damage caused by the burst of Japan’s asset bubble would have been warning enough.
Might the world be in need of a bigger warning?
Filed Under China, Equity Markets, Stocks
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I admit, I’m clueless…what is Chinese central bank or monetary policy and what have they done to try to cool things off? Do they see it as necessary?
Sorry I missed this post.
I should say that I don’t think the Chinese government should take active measures to slow down the economy. I simply think the government should STOP taking active measures to inflate it. What I mean is that the open market operations taken by the People’s Bank of China (namely creation of money in response to huge inflows of dollars) are responsible for out of control growth in the Chinese economy. We can look to Japan 20 years ago as an example of how overcapitalization leads to overcapacity leads to deflation. They need to turn off the easy money spigot.