-->Expert Warns of 'Overheated' Speculation in Chinese Markets

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Wang Menglun
Liberty Times - translated by The Epoch Times
Oct 01, 2004


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The display model of houses for sale by a real estate company in Shanghai. Getty Images
A financial expert has issued a warning that another round of heated speculation in the Chinese economy could ignite and accelerate a large scale economic downturn in China.
Guozhong Xie, general manager and board of director of Morgan Stanley and chief financial analyst of Asia Pacific, issued a warning on Sept. 21. Following the Fourth Plenary Session of the 16th Central Committee of the Communist Party of China, at which China officially finished the succession of its new leadership, Xie noted that the current Chinese authorities tend to be moderate toward macro control, creating the environment for another round of speculation.

Xie indicated in a report to foreign investment companies that the moderating effect on the economy of the exercised macroeconomic regulation and control by China has remained very limited. The problems of over investment have yet to be resolved.

Using real estate as an example Xie noted that the real estate market in China has attracted a great deal of capital investment that does not stem from the actual demand for housing but from the anticipated demand and the hope of gaining profit by holding market share.

"The real estate market demand has been overstated," Xie said. “Chinese real estate can’t continue to sustain the current housing demand for the long term. Even though Chinese people do wish to purchase houses, the problem is that the current prices are not reasonable, thus it is not right time for them to enter the market.”

According to Xie, revenue from the sale of new houses this year is as high as 8.2 percent of GDP, vastly higher than the 2 percent of a few years ago. Currently, the new house construction area has reached a market value of 30 percent of GDP, an indication that the market has been “overheated.”

He said the evaluation based on the current pricing indicates that the future housing demand could only account for 50 percent of the current needs. Xie added that other than the problems with an overheated real estate market, the Chinese economy will be greatly affected in a short period of time if any of the following four phenomena arise: an increase in interest rates, a decline in exports, an increase in the interest rate of the U.S. dollar, and a continued surplus situation it the real estate market.

Xie emphasized that if the Chinese leadership is unable to curb the overheated market and attempts a heavy-handed correction, there is a risk of a large-scale economic adjustment.