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China in the 2010s: The Economy of Overheating

Author

Listed:
  • NOSOV, Vasilii D.

    (Sberbank of Russia)

Abstract

In recent years, the word “overheating” is very often used regarding to China’s economy. Indeed, over the past 8 years equity market bubble of 2014–2015, real estate bubbles of 2010–2011, 2012–2013 and 2015–2017 and bitcoin market bubble of 2016 were in the spotlight. Upon close analysis it is found that the bubbles were provoked by the policy of the authorities. The formation of a bubble forces regulators to implement restrictive measures, but at the same time the authorities stimulate the emergence of a rush demand on another market. Investors’ funds flow into another market, which leads to the formation of a new bubble. Maintenance of markets in overheating condition is a very atypical policy. It is necessary to clarify what mechanisms are used by the Chinese authorities for markers’s overheating and cooling. It is also important to understand the goals of such a policy in order to analize China’s economy and to make predictions of further PRC development. It is illustrated in this article that he main reason to push the authorities to create conditions for bubble emergence is the necessity to stimulate private consumption. In China, there is a historically determined problem of the abnormally high propensity to save. The creation of bubbles is an attempt to overcome population habits, an effort to “accustom” the Chinese not to put all the money into a deposit or “under the mattress”. Investing part of the funds in investment goods with almost guaranteed high yield, the Chinese receive additional income, and, as statistics show, they increase consumption.

Suggested Citation

  • NOSOV, Vasilii D., 2017. "China in the 2010s: The Economy of Overheating," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 6, pages 24-41, December.
  • Handle: RePEc:rnp:ecopol:ep1761
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    References listed on IDEAS

    as
    1. Huang, Yukon, 2017. "Cracking the China Conundrum: Why Conventional Economic Wisdom is Often Wrong," OUP Catalogue, Oxford University Press, number 9780190630034.
    2. Michael Pettis, 2013. "The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy," Economics Books, Princeton University Press, edition 1, number 9936, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    China; equity market; real estate market; economic policy; consumer demand.;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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