China Bubble Due To Low Interest Rates

The latest from Andy Xie courtesy of CapitalVue News:

* Wednesday 2010-05-05 17:34

Andy Xie, formerly chief Asia economist at Morgan Stanley, said the Chinese real estate market is 100 percent overvalued and that the intrinsic value of the Shanghai Composite Index is 2,000 points, reports Xie compared the current Chinese housing market to the Japanese housing market of the 1980s and 1990s and predicts China's stock and real estate markets will decline slightly in the fourth quarter of this year, with a large decline coming in 2012. Xie said the asset bubble was triggered by long-term low interest rates and an over-supply of money.

In December, 1999, broad M2 money supply in China was 11.76 trillion yuan, rising to 60.62 trilion yuan in December 2009, said the report. The 415 percent rise in the money supply was matched by a 453 percent rise in Beijing real estate prices, said the report.


We have yet to see big downward real estate moves in China, but they are coming.  We note this a.m. that the Shanghai Comp Index is down again for the fifth session in a row.  Not a good indicator of things to come in China.