The Illusion of a Chinese Bubble
Explosive growth in money supply and credit have inspired some China watchers to regard the country’s economy as a bubble, if not to predict a hard landing in 2010. But that judgment seems premature, at best, given the reasons behind the credit growth and the government's recent moves to address signs of overheating.
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BEIJING – On the eve of Chinese New Year, the People’s Bank of China (PBC) surprised the market by announcing – for the second consecutive time in a month – an increase in banks’ mandatory-reserve ratio by 50 basis points, bringing it to 16.5%. Shortly before that, China’s government acted to stop over-borrowing by local governments (through local state investment corporations), and to cool feverish regional housing markets by raising the down-payment ratio for second house buyers and the capital-adequacy ratio for developers.