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US
investment bank Goldman Sachs has allayed fears that
China
could emulate
Japan
's 1980s bubble economy in a new report.
China
's stock market saw a whopping rise of 130 percent last
year, land prices have surged in the past five years and the currency
keeps going up.
These
factors have raised widespread debate over whether
China
's economy is overheating and developing a bubble like
Japan
in the 1980s, especially in the stock market.
Baidu
,
China
's biggest search engine, lists 678,000 web pages
discussing whether the country's economy is overheating.
A
survey by the central bank last year showed 42 percent of Chinese bankers
believed the economy was overheating or tending to overheat.
Cheng
Siwei, vice chairman of the Standing Committee of the National People's
Congress, warned that the bubble was developing in the stock market last
month.
However,
the Goldman Sachs report said, "China now and Japan then share a few
macro similarities, but a more open economy and markets, stricter forex
controls and better developed corporate governance could prevent China
from repeating Japan's boom-bust experience."
Following
the 1985 Plaza Accord in which the
United States
and other countries urged
Japan
to revalue its currency, the Japanese yen almost tripled in value against
the US dollar in three years. Corporate investment surged and land prices
doubled, while
Tokyo
's Nikkei stock market index saw a 180-percent rise.
By the
end of 1990, the
Tokyo
stock market had fallen 38 percent, wiping out 2.07 trillion US dollars as
Japan
tightened its monetary policies to suppress the rise in value of assets
such as land.
"In
China
, the foreign currency exchange mechanism is relatively inflexible as the
Chinese government is still in the process of gradually liberalizing the
capital account by imposing a daily movement of 0.3 percentage for yuan
against the US dollar," the report said.
"We
think this cautious, yet prudent move by the Chinese government is
long-term positive," it said.
China
's central bank would make two interest rate hikes this
year, 27 basis points each in both the benchmark lending and borrowing
rates to soak up unwanted excess liquidity. The bank predicted and
believed these measures would help
China
to avoid a boom-bust bubble.
2007-03-07
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