China Warns Global Financial Bubble Could Burst
The comments below are an edited and abridged synopsis of an article by Tyler Durden
Liang Tao, vice chairman of China Banking and Insurance Regulatory Commission, says that recent interest rate hikes by emerging economies could lead to a bursting of global financial asset bubbles that have been made bigger by unprecedented pandemic-easing measures by developed countries. Tao added that developed countries are sticking with ultra-low rates even as emerging economies raise their borrowing costs, potentially resulting in the re-pricing of global assets.
China is thus saying that US and western central banks are the parties responsible not only for bursting the biggest asset bubble in history, but also for creating it in the first place.
Tao suggested that countries should coordinate financial regulation and improve the monitoring of cross-border fund flows, while emerging markets must prevent risks from large movements of the so-called hot money. He also said that organizations such as the IMF, the World Bank and the WTO should better represent developing countries, as if every emerging market has a capital firewall like China’s, which can be shut down at a moment’s notice.
Tao said China, whose debt has exploded in the past year, has managed risks from new hidden local government debt, and contained bubble risks in property finance. He also claimed (erroneously) that financial sector leverage has declined while a disorderly expansion of capital has been corrected. China’s debt is the highest among major emerging markets.
China’s credit expansion has slowed to the point where its credit impulse has turned negative, which means that if anyone is looking for the deflationary catalyst that tips the global financial system into contraction and crashes the stock market, look no further than China.