Esuberanza irrazionale in Cina?
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China Regulator Warns Of Investment Bubble
BEIJING, Feb. 26 -- China's senior currency regulator warned Thursday that the billions of investment dollars surging into the country may be generating a potentially dangerous bubble, adding to recent speculation that the government may slightly increase the value of the country's currency in order to cool growth.
"The inflation rate is rising, and the asset bubble problem is starting to get worrying," Guo Shuqing said in a statement published on the Web site of the State Administration of Foreign Exchange, which supervises inflows of foreign money.
Guo's assessment of the pitfalls facing China's economy was unusually candid, the strongest indication yet that the country's senior leaders fear that speculation is driving an unsustainable boom -- one that could end badly for China's insolvent banks, now choked with about $500 billion in bad loans. His words lent credence to the widening view that while China will resist foreign pressure to revalue its currency, it may go that route for purely domestic reasons -- as a way to apply a brake to potentially excessive growth.
Rapid foreign investment is forcing the country's central bank to step up purchases of foreign currency to maintain the fixed exchange rate of the yuan, also known as the renminbi. Last year, China's foreign reserves grew more than 40 percent, to $403 billion, according to the government.
Although the government has sold billions of dollars worth of bonds to absorb some of this money, China's banks have lately shown a reluctance to buy. The domestic money supply grew by nearly 20 percent last year. Awash in cash, China's banks have increased their lending, adding momentum to already booming industries, such as real estate construction and automobile manufacturing. These industries have in turn absorbed ever-larger quantities of raw materials such as steel and cement, contributing to an accelerating though still modest inflation rate. In 2003, it was about 3 percent.
As China's leaders know well, economic booms have a way of going bust. The Asian financial crisis of the late 1990s, which reversed decades of economic progress in months, emerged after years of sustained investment that resulted in a glut of office towers across the region, along with forests of half-finished shopping malls, apartments and hotels. When many of these ventures failed, banks were forced to write off billions in bad loans. Credit taps were turned off for good companies as well as bad.
China has introduced some safeguards -- increasing the percentage of assets that banks must hold in reserve from 6 to 7 percent in a bid to slow lending as well as tightening credit flowing to the auto and real estate industries. But so many projects are already in the works that these measures may not be adequate.
In recent months, China has felt pressure from abroad -- particularly the United States -- to allow the yuan to float freely amid complaints that its low exchange rate makes the country's exports unfairly cheap. China has rebuffed these demands, noting that two-thirds of its exports are produced by factories wholly or partly owned by foreign companies. China has also emphasized that, even as it enjoys a roughly $120 billion trade surplus with the United States, its global trade is largely balanced -- the result of its growing appetite for the goods of the world, particularly raw materials.
On Thursday, a delegation from the U.S. Treasury wrapped up two days of talks here with Chinese counterparts to discuss the currency issue with no clear indication that the delegates had gained anything new.
Yet, even as most analysts insist that Beijing will not yield to outside pressure on its currency, analysts are increasingly pondering the possibility that China will opt to slightly revalue the yuan as a way to slow the onslaught of foreign money. As Guo noted in Thursday's statement, much of this money has come in anticipation that China will eventually revalue.
Some analysts suggest that any revaluation will simply attract even more speculative money in anticipation of another bump up. "Once China goes down this path, it's a bottomless pit," said Andy Xie, an economist at Morgan Stanley in Hong Kong.
But others suggest that the speculators have already been rewarded. If a revaluation emerges, the speculators watch their yuan appreciate in value. If the government holds the line on the exchange rate, yuan-based assets increase in value as inflation lifts the price of everything from rubber factories to apartment buildings.
"The speculators have already won," said Arthur Kroeber, managing editor of China Economic Quarterly, speaking during a seminar Wednesday in Beijing.
Others surmise that inflation could itself generate momentum for a revaluation. As China pours more and more capital into importing raw materials, it might be tempted to increase the value of its currency as a way to reduce the bill.
