Another Economic Bubble Burst Ahead - China? (Part 2)

In the first part of this article, the author has provided details suggestive of the need to be aware of the pace of economic development in China. The proposal was based on an exclusive feature of economic growth of economic super powers from one phase to the phase of economic miracles of economic malaise. The author argued for the need for policies that would soften the negative impact on the world economy there should be no failure of the Chinese economy. In this second part of the article, the author would like to start with an introductory discussion of what an economic bubble burst, and the controversy surrounding it. Subsequently, the article would discuss some future changes are expected to initiate precautionary China to support its economy and avoid earthquake Economic and reducing the impact of faults on the world economy. In fact, this discussion that follows is not a panacea for all future expected economic fragility, but rather a perspective of analysis of reality and what must be done. Again, not a complaint that the vitriol of the economic successes of China, but rather an accurate assessment of the current situation which can serve as an omen for the unexpected future economic fiasco.

Now, an economic bubble burst in simple terms occur when the economy experiences huge accumulation of bad debt (bankruptcy) and the deterioration of asset values. Impairment of assets occurs because resources both good and bad too appreciate beyond their intrinsic value. This is prevalent when interest rates are low and investors to borrow from banks to invest in financial assets resulting in more money into the system as compared to a few activities. Ultimately, the increase in demand for goods culminates in the overvaluation of their market value than their intrinsic value. In addition, inappropriate monetary policies that allow unscrupulous lending practices by banks may lead to the formation of bubbles in asset prices. "To explain this point, it is possible that indiscriminate lending practices will result in perpetual loans and consequently the accumulation of bad debts. So two financial mishaps are inevitable here which is creating suffering and huge losses in asset values.

These situations drive a chain reaction called economic bubble economy that spreads to other parts of the economy. A recent example is what occurred in the U.S. housing sector in 2007, when the suffering and were highest selling house has lost value dramatically. The situation created a negative spread to other parts of the U.S. economy because the housing sector is an integral part of the economy increased. Now, there are a lot of controversy surrounding the formation of the economic bubble burst. There are those who argue that the phenomenon can occur in times when prices are correct market price and seems efficient. And that the time of occurrence is very uncertain and that makes it very difficult to decipher the exact cause. Despite the clamor, the net effect of the bursting of the bubble is the loss of a great wealth and possible failure of the economic system.

A remedial measure for the burst of the bubble economy is for governments to increase the interest rate or bank reserve requirement to reduce the availability of loanable funds and the amount of money in the system. At present, it is known that the Chinese government is implementing monetary and fiscal policies that can prevent the creation of bad debt and then a burst of the bubble economy. This is very commendable. However, there are other factors that indirectly gravitate toward a burst of economic bubble that must be addressed. In this context, to ensure the sustainability of the Chinese economy and forestall any economic earthquake that resonate with the world economy, it is imperative that much consideration is given to subsequent propositions that address these factors.

The country should have examined the factors that control compositely its economic freedom and political freedom locally and internationally. Factors to consider are the investment freedom, financial freedom, property rights, freedom, freedom from corruption and invariably the freedom of civil rights. There is a need to remove the restrictions on freedom of investment, in particular the caps and the delineation of some sectors for foreign investors. Furthermore, control of the disordered state of its financial systems mainly banks should be reviewed. The review should focus on the current regulatory framework that limits foreign investors in capital markets and also limits the expansion of financial services for locals and foreigners. In fact, the revisions of its kind in the financial sector would increase the financial system's contribution to GDP growth, as well as providing jobs in the industry. There is also a need to enforce the protection of intellectual property rights to curb the activities of copyright and related fraudulent offers on patents, trademarks and similar.

Subsequently, the pragmatic eradication of all forms of corruption is essential to promote regulatory transparency in the financial sector, and government activities and projects at the state level and local level. As a matter of fact, in every progressive corruption in the government-wide and individual collection is a return on foreign direct investment. Unfortunately, if left unchecked can adulterate the decency of the economic growth gradually leading to a halt. The corruption at this level may lead to the creation of bad debts as it has the tendency to promote indiscriminate and vague transactions (including lending practices) as a result the opening of a bubble economy burst. Transactions also indiscriminate practices of expenditure not provided for the race to promote activities that could result in over-evaluation activities. In fact, corruption from this point of view is a potential "mine" for the beginning and the causation of the economic bubble burst. Generally, the influence of the Communist Party to power in a market economy is the inhibition of investments, financial freedom and property rights, besides improving the corruption indirectly. Moreover, China is assumed to have a very low tolerance for political freedom with particular reference to human rights.

Indeed, a proper reform of these components of his economic freedom and political freedom would increase its reputation on the international scene fomenting the prosperity of its strategic investments in places like Africa, South America and the developed world. Rumors attributed to the fact that China's investment in places like Africa is a form of neo-colonialism and this should prevent the pace of strategic investments (mergers and acquisitions) in these foreign countries. Only time would tell if the activities in China are pro neo-colonialist. Because there is a proverb that says that fire is a good servant but a bad master and it remains to know whether the activities would be consistent with that of China said. China needs to prove his critics wrong! Critics argue that Africa has become a breeding ground for China to do business in the first place because China is more interested in doing business in accordance with the standards of moral and ethical corruption hate, human rights violations and the impact environmental pollution, probably. Substantiating their claim is the claim that the country is aggressively doing business in places like Sudan, Zimbabwe, Democratic Republic of Congo where human rights abuses, genocide and corruption are at their zenith, and also in countries like Ghana and Zambia, where environmental pollution is rising, but a secondary problem. The Western world sees the breach and agitation for adherence to ethical standards and, unfortunately, African governments do not seem to welcome the expressions of the Western world.

However, with a record trade surplus of $ 35.2 billion in September 2008, China has the ability to invest anywhere, although it is expected that the trade surplus to decline in the face of stagnant exports and domestic demand. The growing needs of raw materials for industrial and manufacturing sector also adds urgency to invest. Currently, China has managed to secure numerous oil projects and investment in Africa because China is the second largest oil consumer after the United States and therefore in need of these sources of oil to support its economy. For your information, the African continent holds about 8% of global oil reserves, and several potential undiscovered reserves. Moreover, China is providing technical assistance and loans to some African countries it considers as vital partners. It also flooded the continent with its cheap goods that create competition in their respective countries. These developments are positive for Africa and the world if a certain degree of skepticism surrounding these international trade transactions because of the possibility of default on loans. China should revise its foreign policy in this essay.

Finally, African leaders are able to celebrate his new found relationship alleged "win-win" with China just because they believe strategic investments, providing much needed jobs to long waits. However, these governments should deal well to see if Chinese policies and foreign investment have the opportunity to do just that without a future price to pay. Furthermore, if these investments are sustainable in terms of geopolitical risk (ie the political changes in investment and labor) which includes China and host countries ....