The_Next_Buble_

After dot-com and housing bubble, China may well be creating the next bubble. The Chinese government’s aggressive response in stimulating its economy during the financial crisis resulted in a large injection into the economy. An increase in loans, liquidity and stimulus has severe effect on the real estate market in China. By basic economics, increased demand without an increase in supply (in the short term) will always increase prices, in this case house prices. Homes can be considered the main investment choice for investors in China who has limited access to other investment vehicles. As such, this creates a huge potential of bad loans to be crated and be covered by the government. One fact that can be pointed out is that the rents in key cities are twice as expensive as in USA pre sub- prime. The meltdown of could well bring down the whole of China’s fragile economy. Another factor that can be worrying is China’s labour cost pressures. Firms are continually making excessive profits in China partly due to the exploitation of labour. However, this is definitely not sustainable. When companies start spending and expanding, China will become enemy of soaring wages, unions and inefficient practices like employee rights. This will all have severe effect on China, the second largest economy in the world. Effect can be well spread if a bubble does burst in China- worldwide stocks, USA and market funds. One question to ponder: who will bail out China if the bubble does burst there'