Morgan Stanley Asia executive director Jerry Lou said China’s ballooning stock market bubble is likely to burst in the first half of 2010, punctured by economic concerns arising from higher-than-expected inflation. He said it is fuelling excessive liquidity.
Jerry Lou said, "An asset price bubble is forming in China, but that process hasn’t finished yet. There’s little room to reduce lending next year. Too much money boosts gross demand, which would translate into inflation."
Jerry Lou said these measures have proved effective in the short term with China’s economic growth likely to exceed 9% in 2010, but on the other hand, they aggravated the imbalances which are at the heart of China’s mode of development.
The Economic Times (India) reported him as saying China’s property prices are too high, and the government should levy higher taxes to curb speculation and make homes affordable to ordinary Chinese.
Lou also suggested that China should decisively deregulate its capital market and allow a one-off revaluation of its currency in a bid to restructure its economy quickly, even at the cost of tens of millions of lost jobs. There seems a lack of humanity in that last statement.