Beware of new bubbles and act

The recent rapid rises in real estate and stock prices in China and some other Asian nations have led to fears that bubbles might have emerged in the two sectors.

The latest round of property price hikes in Asian nations is largely related to proactive financial and loose monetary polices, which have catalyzed excess liquidity. In China, for example, over the past five years, M2 supply in Asia's second-largest economy has maintained an average 17 percent annual growth rate and is expected to exceed 30 percent this year. Due to gloomy external economic prospects and widespread worries about investment risks in the bleak manufacturing sector, the real estate market is regarded as an investment paradise. At the same time, people's worries that the country's relaxed monetary policy will possibly fuel inflation have also contributed to the rush for panic house buying to ward off effects of a possible inflation rise and keep their assets from being devalued.

Despite people's growing expectations of inflation, the consumer price index (CPI) is not expected to ascend steeply anytime soon. This is because manufacturers want to sell their stockpiled products as soon as possible in the face of a possible economic slowdown and consumption contraction, which will inevitably prompt them to cut prices amid severe market competition. In the absence of pressure from inflation, the central banks in Asia are unlikely to call an end to the loose monetary policy as the main tool to check a lingering slump. As a result, growing liquidity will push property prices further up.