Chinese expert: China crash prediction 'illogical'

10:40, May 07, 2010      

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China's economy will slow and possibly "crash" within a year as declines in stock and commodity prices signal the nation's property bubble is set to burst, predicted Marc Faber, a Hong Kong based investment adviser. Dr Faber's forecast is illogical and is an obvious misjudgment, one Chinese expert said.

Marc Faber, a.k.a. "Dr. Doom," joins hedge fund manager Jim Chanos and Harvard University's Kenneth Rogoff in warning of a crash in China.

Chanos said in an interview last month that China is "on a treadmill to hell" because it relies on property development to drive growth. As much as 60 percent of the country's gross domestic product relies on construction, he said. Rogoff said in February that a debt-fueled bubble in China may trigger a regional recession within a decade.

Xu Bin, a professor of Economics and Finance with China Europe International Business School, noted that although China's regulation of the housing market may slow down China's economic growth, he stands firmly against Faber's theory.

"Before China adopted tightening policies, the foreigners said that a booming asset bubble would lead to China's crash," Xu said. "While China is striving to control bubbles, they say that the regulation policies will lead to the crash of China's economy. There has been no logic in their theory, and it is an obvious misjudgment"

The theory that a crash in China is imminent is not a new one. In 2003 and 2004, when China's banking institutions faced relatively high non-performing loans, many Western economists predicted that China's banks would crash, and then China's economy continued to gain momentum.

"Seven years have passed, and we can hardly find those prophets." Xu said.

Xu admitted that the regulation policies will have some impact on the property and the stock markets and slow down China's economic growth. But "the Chinese government won't let the policies get out of hand", he said.

China achieved nearly 12 percent GDP growth in the first quarter of 2010, but the target set for the whole year was only 8 percent.

"This indicates that the government has already taken the policies' impact into consideration," Xu said.

As to the theory that regulation will lead to crash, Xu noted that China's population structure contributes to the relatively high rigid demand in China's housing market. Meanwhile, because China does not allow "zero first payment," risk from individual housing mortgage loans is very low.

By People's Daily Online


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