someone else Economic Bubble Burst Ahead - China? (Part 2)

Miracle Grow Fertilizer - someone else Economic Bubble Burst Ahead - China? (Part 2)

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In the first part of this article, the author in case,granted the astonishing details for the need to be mindful of the economic pace of development in China. The suggestion was based on an exclusive analysis of economic increase characteristics of economic super powers from a phase of economic miracles to the phase of economic malaise. The author advocated for the need for policies that would mollify the negative impact on the world economy should there be any failure of the Chinese economy. In this second part of the article, the author would like to start with a prefatory consulation of what an economic bubble burst is and the controversies surrounding it. Next, the record would discuss some time to come precautionary changes China is thinkable, to get underway in order to keep its economy avoiding any economic quake and reducing the impact of any failure on the world economy. In fact, this ensuing consulation is not a panacea for any time to come expectant economic frailties but rather a perspective analysis of reality and what needs to be done. Again, it is not a vitriolic censure of China's economic achievements but rather a careful assessment of the current situation which can serve as a harbinger to any time to come eventuality of economic fiasco.

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Now, an economic bubble burst in straightforward terms occur when an economy experiences huge accumulation of bad debts (bankruptcies) and deterioration of asset values. Deterioration of assets occurs because both good and bad assets appreciate excessively beyond their intrinsic value. This is prevalent when interest rates are low and investors borrow from banks to invest in financial assets resulting in more money in the law as against few assets. Ultimately, the increase in demand of assets culminates in over-valuation of their store value as against their intrinsic value. Furthermore, inappropriate monetary policies that enable unscrupulous lending practices by banks can lead to the formation of asset price "bubbles". To interpret this point, it is inherent that indiscriminate lending practices will ensue in unredeemable loans and consequently the accumulation of bad debts. So two financial mishaps are sure here that is the creation of bad debts and huge losses in asset values.

Such situations actuate an economic chain reaction called economic bubble burst which spreads to other parts of the economy. A recent example is what occurred in the U.S housing sector in 2007 when bad debts were maximal and home sale lost value dramatically. The negative situation created spread to other parts of the U.S economy because the housing sector is an integral part of the greater economy. Now, there are a lot of controversies surrounding the formation of economic bubble burst. There are those who argue that the phenomenon can occur in times when prices are correctly price and store seems efficient. And that the time of occurrence is very uncertain and that makes it very difficult to decipher accurately it causes. Despite the hullabaloo, the net ensue of the bubble burst is loss of great wealth and inherent failure of the economic system.

A medicinal part for economic bubble burst is for governments to increase interest rate or bank reserves requirement so as to sacrifice the availability of loanable funds and also the estimate of money in the system. As at now, it is known that the Chinese government is putting in place monetary and fiscal policies that can prevent the creation of bad debts and subsequently an economic bubble burst. This is very commendable. However, there are other factors that gravitate indirectly towards an economic bubble burst which needs to be addressed. In this context, to ensure the sustainability of China's economy and prevent any economic quake which would resonate with the world economy, it is imperative that much notice is given to the ensuing propositions which address these factors.

The country would have to delineate the factors that compositely operate its economic freedom and political freedom locally and internationally. The factors to reconsider are venture freedom, financial freedom, asset possession freedom, freedom from corruption and invariably civil possession freedom. There is the need to remove restrictions on venture freedom especially the caps and delineation of sure sectors for foreign investors. Furthermore, the state immoderate operate of its financial systems predominantly the banks needs to be revised. The correction should be focused on the current regulatory framework which limits foreign investors in capital markets and also curtails the expansion of financial services to the locals and foreigners alike. In fact, revisions of this sort in the financial sector would increase the contribution of the financial law to Gdp increase in increasing to providing jobs in the sector. There is also the need to inflict intellectual asset possession security to curb copyright activities and related fraudulent deals on patents, trademarks and the likes.

Next, pragmatic eradication of any corruption is requisite to promote regulatory transparency in the financial sector as well as government activities and projects at the state and local level. As matter of fact, in any progressive economy corruption at the governmental and personel level is a set back to direct foreign investment. Unfortunately, if not controlled can adulterate the decency of economic increase gently bringing it to a halt. Also corruption at this level can lead to creation of bad debts as it has the tendency to promote indiscriminate and vague transactions (including lending practices) consequently initiating an economic bubble burst. Indiscriminate transactions also contain unplanned spending practices promoting the scramble for assets which could ensue in assets over-valuation. In reality, corruption from this perspective is a inherent "land mine" for initiation and causation of an economic bubble burst. Generally, the work on of the ruling communist party on the store economy is inhibiting investment, financial and asset possession freedom besides indirectly enhancing corruption. Also, China is presumed to have a very low tolerance for political freedom with particular reference to human rights.

Truly, a proper reformation of these components of its economic freedom and political freedom would heighten its credit on the international scene fomenting the prosperity of its strategic investments in places like Africa, South America and the developed world. Rumors have it that China's venture in places like Africa is a form of neo-colonialism and this is thinkable, to impede the pace of strategic investments (mergers and acquisitions) in these foreign countries. Only time would tell if China's activities are pro neo-colonialist. For there is a proverbial saying that fire is a good servant but a bad devotee and it remains to be known if the activities of China would conform to this saying. China must prove its critics wrong! The critics argue that Africa has become a fertile ground for China for doing company primarily because China is more curious in doing company than in conforming to moral and ethical standards of detesting corruption, human possession abuses and probably environmental pollution impacts. Substantiating their claim is the assertion that the country is aggressively doing company in places like Sudan, Zimbabwe, Democratic Republic of Congo where human possession abuse, genocide and corruption are at their zenith and also in countries like Ghana and Zambia where environmental pollution is on the ascendency but a secondary issue. The western world sees the violation here and is agitating for adherence to ethical standards and unfortunately African governments seem not to welcome the western world utterances.

Nevertheless, with a record trade surplus of .2 billion as at September 2008, China has the capability to invest any where even though the trade surplus is thinkable, to dwindle in the face of sluggish exports and domestic demand. The growing raw material needs for its industrial and manufacturing sector also adds to the crisis to invest. Currently, China has managed to get any oil projects and investments in Africa because China is the second largest consumer of oil after United States and so it needs these oil sources to keep its economy. For your information, the continent of Africa holds about 8% of the world's oil reserves besides any inherent undiscovered reserves. Additionally, China is supplying technical assistance and loans to some African countries that it deems as viable company partners. It has also inundated the continent with its low cost goods creating competition in respective country markets. These are sure developments for Africa and the world though some degree of skepticism surrounds these international company transactions because of the possibility of default loans. China would have to delineate its foreign procedure in this wise.

Finally, African leaders may be celebrating their new found supposed "win-win" connection with China just because they believe the strategic investments would furnish the much needed long awaited jobs. However, these governments should do the math well to ascertain either Chinese foreign policies and investments have the capability to do just that without a time to come price to pay. Furthermore, either these investments are sustainable from the view point of geopolitical risk (that is procedure changes in investments and labor) encompassing China and host countries.

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