Is Alan Greenspan Behind China's Bubble Too?

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William Pesek Jr. in Washington, or [e-mail]

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Last Updated: February 10, 2004 22:47 EST
http://quote.bloomberg.com/apps/news?pid=10000039&sid=a5z8k14ECUoU&refer=columnist_pesek

Is Alan Greenspan Behind China's Bubble Too? -- Globalization is globalizing the Federal Reserve: William Pesek Jr.Feb. 11 Bloomberg

It has 12 districts and acts based on U.S. events, but its influence has never been greater. It isn't far-fetched to think of Latin America as the 13th district, Southeast Asia the 14th, Russia the 15th, China the 16th, and so on.

Perhaps it's not surprising, then, that some observers are blaming the Fed for problems in one of its de facto, satellite districts. China, Asia's second-largest economy, is experiencing a dangerous asset bubble, one that's making investors antsy.

It seems a reach to blame Fed Chairman Alan Greenspan and his colleagues here in Washington. After all, Asia isn't a huge blip on the Fed's radar screen these days. The Fed also has taken its share of flack for the U.S. bubble of the late 1990s. But the U.S. central bank's global reach is being felt in Asia.

``The Fed commitment to keeping interest rates low for a considerable period of time fueled speculation in high-risk assets,'' says Andy Xie, Hong Kong-based chief economist at Morgan Stanley Asia Ltd.

``The byproducts of this speculation,'' Xie explains, ``are the wealth effect on consumption in the U.S. and the cheap capital-fueled investment boom in China -- the twin engines or bubbles, depending on your perspective, for the global economy today.''
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Xie's views are contrarian, indeed, but it's hard to dismiss them. The vast majority of world leaders, economists and investors think China's currency is undervalued and that Beijing should let it rise.

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