It is one of the risks threatening Asia’s V-shaped recovery
By ANTHONY ROWLEY 18 March 2010
Soaring property prices in China, fed by a surge in bank lending, ‘may be creating asset bubbles’ in the world’s fastest-growing economy, Asian Development Bank president Hirohiko Kuroda suggested yesterday.
A bubble or series of bubbles could lead to an asset price bust, damaging consumer confidence and investment in China, he warned.
This was one of a number of risks that Mr. Kuroda identified as threatening what he called the ‘V-shaped’ economic recovery enjoyed by Asian economies. Recovery in the world’s most advanced economies could also ‘still falter’, he suggested.
The ADB expects to further upgrade its regional growth forecast for Asia in 2010 after revising it up to 6.6 per cent last December, the president told the Foreign Correspondents Club of Japan.
He forecast especially rapid recovery in 2010 for Asia’s newly industrialised economies, including Singapore. A ‘return to rapid growth could be as quick as the contractions (these economies) suffered’, because of a sharp recovery in world trade.
‘And, after suffering their biggest slowdown since the Asian financial crisis, the four middle-income Asean economies (Indonesia, Thailand, Malaysia and the Philippines) should return to robust growth in 2010,’ he said.
‘India too appears to be on track for an upgrade in growth forecasts.’
He reserved his strongest reservations for China. ‘China’s strong growth, which has played a large role in the region’s recovery, might lose momentum for a variety of reasons.
‘There is concern that the large increase in bank lending in 2009 may be creating asset bubbles, particularly as property prices continue to soar. And there is always the possibility that, in their eagerness to extend loans, banks in China may have unwittingly relaxed underwriting standards.
‘This could result in larger write-offs or non-performing loans in future if asset prices go down sharply. This, of course, could then dent consumer confidence and dampen investment, especially in construction.’
Mr. Kuroda told BT that he was confident of the Chinese economy’s ability to ‘absorb’ possible shocks, citing its relatively strong fiscal position and the overall strength of its economy.
The ADB president also drew attention to risks outside of this region, which he suggested could derail the Asian recovery.
‘Much of Asia’s economic fate still relies on the prognosis for economic recovery in the advanced G-3 economies’, that is, the US, Europe and Japan.
He urged policymakers in Asia to focus on reducing ‘excessive reliance’ on exports.
‘In the US, the Great Recession appears to have ended but aftershocks of the financial crisis are likely to continue to weigh on the economy,’ he said, citing high unemployment and lower consumer spending.
Mr. Kuroda also flagged danger from the Greek debt crisis. ‘A default would certain dent financial and consumer confidence in Europe, leading to slower growth. And the situation could rapidly escalate, should fear spread to other highly indebted European economies.’
By contrast, he said, Japan’s huge burden of government debt in relation to GDP was manageable for now, because of the large net external creditor position, unlike many advanced economies that have a heavy net external debt position.
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ADB chief warns of asset bubbles in China
It is one of the risks threatening Asia’s V-shaped recovery
By ANTHONY ROWLEY
18 March 2010
Soaring property prices in China, fed by a surge in bank lending, ‘may be creating asset bubbles’ in the world’s fastest-growing economy, Asian Development Bank president Hirohiko Kuroda suggested yesterday.
A bubble or series of bubbles could lead to an asset price bust, damaging consumer confidence and investment in China, he warned.
This was one of a number of risks that Mr. Kuroda identified as threatening what he called the ‘V-shaped’ economic recovery enjoyed by Asian economies. Recovery in the world’s most advanced economies could also ‘still falter’, he suggested.
The ADB expects to further upgrade its regional growth forecast for Asia in 2010 after revising it up to 6.6 per cent last December, the president told the Foreign Correspondents Club of Japan.
He forecast especially rapid recovery in 2010 for Asia’s newly industrialised economies, including Singapore. A ‘return to rapid growth could be as quick as the contractions (these economies) suffered’, because of a sharp recovery in world trade.
‘And, after suffering their biggest slowdown since the Asian financial crisis, the four middle-income Asean economies (Indonesia, Thailand, Malaysia and the Philippines) should return to robust growth in 2010,’ he said.
‘India too appears to be on track for an upgrade in growth forecasts.’
He reserved his strongest reservations for China. ‘China’s strong growth, which has played a large role in the region’s recovery, might lose momentum for a variety of reasons.
‘There is concern that the large increase in bank lending in 2009 may be creating asset bubbles, particularly as property prices continue to soar. And there is always the possibility that, in their eagerness to extend loans, banks in China may have unwittingly relaxed underwriting standards.
‘This could result in larger write-offs or non-performing loans in future if asset prices go down sharply. This, of course, could then dent consumer confidence and dampen investment, especially in construction.’
Mr. Kuroda told BT that he was confident of the Chinese economy’s ability to ‘absorb’ possible shocks, citing its relatively strong fiscal position and the overall strength of its economy.
The ADB president also drew attention to risks outside of this region, which he suggested could derail the Asian recovery.
‘Much of Asia’s economic fate still relies on the prognosis for economic recovery in the advanced G-3 economies’, that is, the US, Europe and Japan.
He urged policymakers in Asia to focus on reducing ‘excessive reliance’ on exports.
‘In the US, the Great Recession appears to have ended but aftershocks of the financial crisis are likely to continue to weigh on the economy,’ he said, citing high unemployment and lower consumer spending.
Mr. Kuroda also flagged danger from the Greek debt crisis. ‘A default would certain dent financial and consumer confidence in Europe, leading to slower growth. And the situation could rapidly escalate, should fear spread to other highly indebted European economies.’
By contrast, he said, Japan’s huge burden of government debt in relation to GDP was manageable for now, because of the large net external creditor position, unlike many advanced economies that have a heavy net external debt position.
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