"Very worrying": China's top overseer warns of speculative bubbles

Tuesday, March 2nd, 2021

"Very unsettling"
China's top overseer warns of speculative bubbles

The stock markets have been partying for months, and the real estate market in China is overheating. The unrest is growing in the leadership of the People's Republic – and they are announcing countermeasures.

China's financial regulators are trying to take pressure off the speculative boiler. The head of the banking and insurance regulator said the growing bubbles in international financial markets and in China's real estate sector are very worrying. Sooner or later they would burst. "The financial markets in Europe, the US and other developed countries are trading at high levels, which runs counter to the real economy," said Guo Shuqing.

The industrialized countries in Europe and the US introduced ultra-loose monetary policies to stabilize their economies, Guo said. But that led to side effects. In contrast to their weak economies, the financial markets there developed well – hence the concern about a bubble forming.

Guo announced tighter monetary policy after China got the corona pandemic under control within its borders. The central bank will likely raise interest rates this year, said the chief regulator. In addition, his authority is examining measures to better control capital inflows from abroad to China and thus prevent turbulence in the domestic market.

Guo added that the size and speed of capital inflows have so far been under Beijing's control. In recent years, the size of China's "shadow banking system" has decreased by about 20 trillion yuan ($ 3.1 trillion), making the financial system healthier and more stable. At the same time, he expressed concern about the real estate market, a bubble that has been expanding in China for years. "A lot of people bought houses not to live in, but to invest or speculate, which is very dangerous," he said. If the market fell in the future, there would be chaos in the banks and in the economy.

People's Congress should approve the new course

Details on the plans could become known shortly. Because on Friday the annual meeting of the people's congress begins in Beijing. The leadership of the Chinese Communist Party launched the new five-year plan at the end of last year, which is approved there.

The new economic course should make China less dependent on the rest of the world. The focus is on the new strategy of "dual cycles", which continues to emphasize the opening of the second largest economy, but more strongly emphasizes the promotion of the domestic market as the main engine and one's own innovation for more independence. The government wants to promote domestic demand and research and technological development for "internal circulation" as the "mainstay of the economy". The "external cycle" – i.e. international trade and investments from abroad – is assigned a supporting role.