Asset Bubbles Unlikely to Threaten Asian Economies, Roach Says
The risk posed by asset bubbles in Asia is overstated because surging prices in markets don’t threaten regional economies, said Stephen Roach, chairman of Morgan Stanley Asia Ltd.
“The difference between the asset bubbles in this region and asset bubbles also around the world is that they have not affected the real side of the Asian economy,” Roach told Bloomberg Television in an interview in Hong Kong today.
Concerns about inflation in Asia are “overblown” as excess capacity in the global economy is likely to keep a “lid” on prices for the next few years, said Roach, author of “The Next Asia.” “Beyond that, it’s a big challenge.”
Standard & Poor’s warned yesterday that Asian policy makers may fuel asset bubbles by leaving interest rates “too low for too long” as the region leads a global recovery from the worst slowdown since World War II. Stock and property markets are looking “frothy” in Asia, said David Wyss, an economist at S&P.
The U.S. had “monster bubbles in property credit that ended up stalling home-building activities and personal consumption” and when they burst the “economy went into the tank,” said Roach. In contrast, in Asia “you have bubbles that come and go, but they don’t impact on the real economy free credit reports.”
China’s Economy
Roach also said that Chinese Premier Wen Jiabao’s past warnings that his nation’s growth path is “unbalanced and unsustainable” have become a “serious concern now.”
“Two of the main engines of the Chinese economy, exports and investments, really have reached their point of maximum dynamism,” Roach said. “The Chinese need to change the model and move much more into consumer-led” growth, he said.
China’s central bank last month ordered banks to set aside more deposits as reserves for the second time in a month to cool the economic expansion after loan growth accelerated and property prices surged 9.5 percent in January, the most in 21 months. The China Banking Regulatory Commission told banks the same month to “strictly” follow property lending policies.
China’s consumer prices increased 1.5 percent in January from a year earlier, mainly due to gains in food costs resulting from the cold winter weather, the National Bureau of Statistics said. The gauge rose 0.6 percent from December.
In the fourth quarter of 2009, the Chinese economy grew 10.7 percent from a year earlier, the fastest pace since 2007.