China in the 2010s: The Economy of Overheating

Abstract

In recent years, the word “overheating” is very often used regarding to China’s economy. Indeed, over the past 8 years equity market bubble of 2014-2015, real estate bubbles of 2010-2011, 2012-2013 and 2015-2017 and bitcoin market bubble of 2016 were in the spotlight. Upon close analysis it is found that the bubbles were provoked by the policy of the authorities. The formation of a bubble forces regulators to implement restrictive measures, but at the same time the authorities stimulate the emergence of a rush demand on another market. Investors’ funds flow into another market, which leads to the formation of a new bubble. Maintenance of markets in overheating condition is a very atypical policy. It is necessary to clarify what mechanisms are used by the Chinese authorities for markers’s overheating and cooling. It is also important to understand the Василий НОСОВ41goals of such a policy in order to analize China’s economy and to make predictions of further PRC development. It is illustrated in this article that the main reason to push the authorities to create conditions for bubble emergence is the necessity to stimulate private consumption. In China, there is a historically determined problem of the abnormally high propensity to save. The creation of bubbles is an attempt to overcome population habits, an effort to “accustom” the Chinese not to put all the money into a deposit or “under the mattress”. Investing part of the funds in investment goods with almost guaranteed high yield, the Chinese receive additional income, and, as statistics show, they increase consumption