Andy Xie on China, money and asset bubbles

I mentioned comments by former Morgan Stanley economist Andy Xie on reckless monetary policy earlier today. Below are interviews Xie gave with the Financial Times in Shanghai back in September which give a more comprehensive look at his views on China, debt bubbles, trade, the U.S., monetary policy and more (Hat tip Prieur du Plessis).

Part 1: China – the big picture
Xie is worried that China is overheating because of its trade surplus and this increases the risk of inflation. He says this is not as bad as it was 15 years ago, but that asset bubbles are clearly forming as stimulus is being channelled into speculative excess.  Inflation can be kept in check as long as policy makers in China demonstrate they intend to preserve the value of money, Xie says.

Part 2: China markets – a bursting bubble?
Xie says China’s stock market is a bubble but it is not as big as people think. He says only a small portion of the market capitalization of quoted companies is available to households, which, in his mind reduces the impact of over-valuation. And given low consumption, the impact goes more to redistribution than the real economy.

However, in my mind, this increases the likelihood of over-valuation as it did in the technology bubble when small percentages of companies were floated, causing investors to bid up those shares.  This magnified the bubble significantly – and caused knock-on effects in the real economy when the market crashed.

Part 3: US credit problems seen from China
Xie sees the U.S. taking the easy way out of a crisis. He likens the crisis in the U.S. to the Asian Crisis in 1997-98. It cannot be lost on most Asians that the U.S. and the International Monetary Fund under the aegis of Tim Geithner proposed very harsh remedies then. Yet it wants something altogether different now.