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The following article was published in our article directory on December 27, 2010.
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China Must Elimination Housing Bubble

Article Category: Business Management

Author Name: xia zihui

China's inflation problem stems from the rapid expansion of the currency over the past 10 years, to finance large real estate market. Result, increasing local government revenue, to fund its huge costs. Unless the local government to take measures to limit spending, otherwise China's inflation may get out of control.

Now that the Government recognizes the key challenges facing the inflation. China, once interest rates increase and raise the deposit reserve ratio several times, also announced plans to introduce price controls. China with a punch, take extraordinary measures, because China believes that its economic and other countries is different from other conventional means of raising interest rates might not work, not necessarily necessary. China is unwilling to change the value of the renminbi, but willing to adjust prices of goods and services, but this attitude to the current did not produce good results.

China has a lot of people think, should control the money supply rather than price. Price and quantity are two sides of an issue. If quantitative measures are successful, it will significantly reduce inflation. Any strong government can limit credit expansion, lowering prices of goods and services, making the role of quantitative policy. The Chinese government is precisely doing that.

This policy is currently little effect. Last year the Government had control of credit expansion. However, outside the system of credit expansion, offset by the credit crunch within the system. For example, the bank business loans can be sold directly to their depositors, shrink its balance sheet in order to achieve government targets. But in fact nothing changed.

Inadequate measures to combat the near future, the public governance to doubt the sincerity of inflation. This view may cause widespread panic, leading to the household sector hoarding of rice and cooking oil. If people no longer holds currency crisis began for a comprehensive.

Has always been in favor of raising interest rates. But it also can not solve the problem of inflation. The purpose is to raise interest rates to maintain depositors to provide compensation for the value of their wealth. Interest rate can prevent social unrest. However, to control inflation, China must solve the problem of government spending. Unless the suppression of government expenditure, or the inflation rate will continue to climb.

There are two ways to cap local government spending. One is to reduce its funding sources. The main source of revenue for local government is selling land, the property tax and bank loans. The last source is slightly tightened, because banks have to bear a large number of government loans, and is working to shrink. However, this change did not hurt the local government, because they have not spent the money by the end.

Elimination of the housing bubble on local government financing a greater impact. Last year, the new real estate sales for 14% of GDP. The money eventually was incorporated into the government coffers. Taking into account the rapid development of the housing market, higher expectations of local government in the future. They long to be good or even how to spend the money.

Shrinkage of the housing market in China may reach half of the total GDP in 2010. Real estate developers and local governments can build the land bank held more expensive homes. If you sell at the current prices of all these properties, demand for money supply expanded rapidly over the past eight years will be maintained at least a 20% annual growth rate, that is, money supply will double every four years. In this case, inflation out of control is inevitable.

If by limiting the amount of money under the general definition, and through other channels, leaving loopholes in credit expansion, it is just in the money supply statistics by playing games. It will not change reality. Inflation rate will continue to rise, even if the Government claims that money growth has slowed.

Only the sharp decline in housing prices, we can believe that the Government is to really fight inflation. Prices determined by the level of local government expenditure. Inflation control, you must first out of the housing bubble. If house prices continue to rise, to combat inflation, can only be a pose.

Cut off funding for the local government can not solve the problem? I'm not sure. China's local governments are powerful enough to have a decisive impact on national policy, but also to find new ways to increase revenue. No reform of local government, China to solve the inflation problem is a dead end.

China is a great country, and favored by multinational corporations in the world already has many advantages. International environment is very beneficial for China. Only China's own big mistake, will lead to a crisis.

China has a strong government. China's household sector and the business sector are living in the shadow of the government. Only the government system fails, it could lead to crisis, hampering economic growth.

For China, the danger of runaway government spending both obvious and realistic. 2011 is an opportune time to address this issue. However, as before, if the Chinese let such an opportunity to choose to enlarge the housing bubble in 2012, China's economy will be a hard landing. This will appear repeatedly in the last century, as the case so that deviate from the path of development in China.

About the Author: I'm Jerri Lily from , which offers quality products such as Portable Digital TV Manufacturer, Micro Projector Manufacturer, and many more.

Keywords: Portable Digital TV Manufacturer, Micro Projector Manufacturer,

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