Richard Koo on China’s Dual Mandate; Busting bubbles and Stimulating a Boom

“Nomura’s top economist Richard Koo appeared on Bloomberg this morning, talking about his new bearish line on China.

The key points are these:

• China is serious about trying to prick the housing bubble. The government realizes that apartments in the city are way too expensive.
• Developers have already seen their access to funds cut off domestically, and so they’re racing around the world looking for more money. Still, some will go bankrupt, and banks will be left holding the bag with bad debt.
• BUT, since China can’t afford to see the economy go bust, fiscal stimulus will be ramped up (more roads, bridges, railroads, etc.).

In a nutshell: Beijing is trying to prick one bubble (real estate) and continue a boom in infrastructure.

Good luck.”

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