Citigroup analysts (NYSE: C) said that China appears to be on track for a “asset boom, bubble and bust” cycle which may take as long as three years to play out and that the cycle will not be halted by tightened economic policies on behalf of China’s government.
Citigroup economists led by former Bank of England policy maker Willem Buiter said in a report that the process will begin in the country’s residential property market before spreading to commercial real estate and eventually to the equities market. The report said that the bubble may take as long as two years to form and another three years for it to burst.
Hedge fund manager Jim Chanos, Gloom Boom & Doom publisher Marc Faber and Harvard University professor Kenneth Rogoff have also made comments that they believe there’ s a potential crash in store for China.
“What is policy in China doing about the threat of overheating in the financial and real economy?” Buiter and Shen said. “The short answer is: not much, and not enough to prevent the creation of what could become a major asset boom, bubble and bust.”
Zhou Xiaochuan, China’s central bank governor, said on March 23rd that the country needs evidence of a “very certain” recovery before it will roll back any stimulus policies which were implemented during the financial crisis.
