The property market is up, will the price rise?

Editor's note: When the world laughs that only China can save capitalism, China proudly declares that China has no financial crisis because China's financial system is healthy.　　But just a few months later, with China's financial institutions releasing an unprecedented loan of about 7 trillion per cent in the first half of the year, there is growing concern about the future health of the Chinese financial system.　　Fitch Ratings Inc. has downgraded China's macroeconomic risk rating from "safe" to "bankrupt" Iceland, fearing that "the future losses of China's stimulus plan will be far greater than expected, and it is unclear whether central and local governments will eventually be willing or able to bear the losses".　　In this flood-flooded currency, Wei Jianing, vice minister of macroeconomic research at the Development Research Center of the State Council, found that about half of the money entered the stock and property markets, and there were signs of asset price bubbles in China. Will it continue to expand into inflation?　　Or is inflation almost doomed to be impossible in the context of capacity and labour surplus?　　And perhaps, as Mr Krugman, the Nobel economist, said, the only thing we need to panic about is the inflation scare itself? Each round of inflation is a reshuffle of wealth: those who hold money wealth are lost, while those who hold assets and physical wealth do not lose, and the currency issuer-the government-becomes a winner. However, this is at the expense of reputational loss.　　　　And when people focus on how to preserve rather than produce, the whole society pays a high price for inflation. The People's Bank law, which stabilizes prices for more than 10 years and 1995 years, has made central banks truly independent.　　From then on, the government department forced commercial banks to put loans, the central bank to send money such things are gone. In today's world, if you want to achieve a billionaire overnight, the easiest way to do that is to go to Zimbabwe in Africa. In January this year, in a country with a unemployment rate of as high as 80% and a life expectancy of only 39 years, a currency with a nominal value of 100 trillion was issued (a very large digital unit with a global GDP of just over 50 trillion dollars). Of course, you don't expect to get the 100 trillion Zimbabwean dollars, in fact, you'd better change it right away.　　At the beginning of February this year, the 100 trillion was about 3.5 yuan, and now it's not worth a penny. 2008, Zimbabwe's inflation rate was staggering 100 million%; this year, it is said that the record has broken through 1 billion%. On average, every 3 seconds, the currency will depreciate by one fold.　　In Zimbabwe, people don't bargain because at this rate you ask a salesperson for a purchase, and the price should at least double when the salesman takes it out. What is happening in Zimbabwe is, of course, a special case, in general, the inflation rate is above 15%, the economy will be disastrous, and according to the CIA statistics, 2008, the world's 29 countriesInflation rates in homes and regions exceed 15% per cent, including Viet Nam (24.5%), Mongolia (28%), Venezuela (31%) and Ethiopia (41%). Each round of inflation is a reshuffle of wealth: those who hold money wealth are lost, while those who hold assets and physical wealth do not lose, and the currency issuer-the government-becomes a winner. However, this is at the expense of reputational loss.　　And when the whole population is focused on how to preserve rather than produce, the whole society pays a high price for inflation. A useful indicator of inflation is the CPI (consumer Price index). From 1978 to 2007, China's CPI rose about 4 times times (set 1978 Index to 100, then 2007 years 493.6), the annual average increase of about 5.6%, of which three year growth rate of more than 15%, respectively, 1988 (18.8%), 1994 (24.1　　%) and 1995 (17.1%). 1995 years later, China's CPI rose basically between 2% and 4%, with three years, and prices even falling (1998 years, 1999, 2002).　　From 1997 to 2007, for exactly 10 years, China's CPI overall rose by only 11.8%, an annual average of less than 1.12% per cent a year. What happened in 1995 that kept China in price stability for more than 10 years? March of that year, the NPC passed the People's Bank of China law, in the form of a clear stipulation: "Monetary policy objective is to maintain the stability of the currency value", "the PBoC under the leadership of the State Council under the authority of the independent implementation of monetary policy, to perform its duties, to carry out business, not by local governments,　　Interference of social groups and individuals ".　　Prices rose a few times before 1995, though for different reasons, but, roughly speaking, all levels of government gave orders to banks, a lot of loans, the central bank had to excessive issuance of banknotes, and eventually led to inflation. The People's Bank Act has made the central bank truly independent and has made the stability of the currency a major goal.　　　　In this way, the government department forced commercial banks to put loans, the central bank to send money, such things are gone.　　Back？　　In the long run, if China's foreign exchange system does not change greatly, the central bank should truly realize the "currency stability" stipulated in the People's Bank law, which is likely to be a task that cannot be accomplished. However, in recent years, there seems to be some change in the situation.　　In 2007, CPI rose by 4.8% per cent, and in 2008 it was 5.9% (the first three-quarter gain was 7% per cent, so the year was significantly lower than in the previous three quarter, largely attributable to the global financial crisis that erupted last year), according to the Statistical Yearbook. The figures for 4.8% and 5.9%, though much higher than the prices of several 1995 years ago, cameSmall, but almost everyone is feeling the pressure of price: small to pork, vegetables, big to house prices, tuition and medical expenses, after more than 10 years of super stable prices, accompanied by rising prices, people's wealth seems to face a reshuffle, and the wealth problem is always the most sensitive topic in Chinese society. Why is the central bank relatively independent, and prices will be more obvious rise?　　This time, the main reason is not to force the central bank to send money, but the foreign exchange system. According to China's foreign exchange Management system, any foreign exchange, whether foreign trade balance or foreign direct investment, can be exchanged for RMB. In other words, every dollar that comes in, the people's Bank must buy in renminbi at a certain price (exchange rate).　　Originally, if the exchange rate is completely market-oriented, the exchange rate can be changed, so that China's balance of payments to maintain a roughly balanced.　　However, China has opted for a relatively fixed exchange rate based on economic development, job creation and lower import and export price fluctuations, which eventually led to China becoming the world's largest trade surplus, plus China's one of the largest foreign direct investment destinations, leaving China with about $2 trillion trillion in foreign exchange reserves. This one corresponds to about 15.5 trillion yuan (April 2009 data), and the same period, the total amount of the renminbi (broad currency M2) of 54 trillion, the foreign exchange portion accounted for nearly 30%. Of course, these 15.5 trillion dollars are not completely released, 12.43 trillion yuan was returned by the central bank in a variety of styles, as a "reserve currency", and finally released about 3.71 trillion yuan (which also has gold reserves and "other foreign assets" contribution, but the foreign exchange contributed absolute big head).　　In the same period, the total amount of RMB cash M0 in circulation was 3.4 trillion, and the narrow currency M1 (m0+) was 17.8 trillion. In January 2007, China's foreign exchange reserves, however 1.1 trillion, surged nearly one-and-a-fold in just over 2 years, although the central bank did much to reduce the liquidity of the market, thereby easing the rise in the CPI.　　But reducing liquidity does not change the fact that the renminbi supplies much more than its corresponding wealth. Roughly speaking, of all the renminbi's wealth, about $3.5 trillion, 1 yuan is a foreign debt to China (of which nearly 5 cents in debt has been formed in the last 2 years).　　In other words, nearly 30% of the renminbi's corresponding wealth is overseas, because the renminbi can only circulate in China, so the total supply of the renminbi in China is much greater than its corresponding wealth, which has laid a heavy groundwork for inflation. The financial crisis interrupted the process of inflation, but in the long run, if China's foreign exchange system does not change significantly, the central bank to truly achieve the people's Bank law, "currency stability", is likely to be a task can not be completed. In particular, although the renminbi has decoupled from the dollar, it is actually still more in the US dollar (the most obvious manifestation is that the renminbi has been relegated to the dollar last monthValue and depreciation against a non-US dollar currency).　　The dollar's future depreciation will be inevitable due to America's hyper-fiscal deficit and trade deficit, which adds extra difficulty to maintaining a "currency stability".　　Asset prices first, prices may follow in general, the most sensitive to the circulation of money should be the stock market and futures markets, and then the real estate, and finally, asset prices rise to a certain extent, may be passed to prices. Why is the market more sensitive than the property market?　　The main reason should be the liquidity of stocks and futures is good. "Currency stability" refers not only to the stability of prices, but also to the stability of asset prices.　　Of course, they are closely related. In terms of prices, China's manufacturing efficiency has risen very quickly, and wages have risen relatively slowly, leading to higher industrial capacity than consumption, so "made in China" needs to use the outside market to digest capacity. As far as industrial products are concerned, in China, we can roughly say that aggregate supply is larger than aggregate demand.　　Therefore, the price of industrial products is not only driven by rising prices but a downward trend.　The supply and demand of agricultural products in China is basically balanced, there may be some fluctuations (such as last year's pork), but if there is no extraordinary situation, it is difficult to produce large and sustained price increases. 2009 1-May Major industrial data sources: National Bureau of Statistics, China-ITU map/Der Spiegel GDP growth data sources: National Bureau of Statistics, foreseen/Spiegel more difficult to do is the rise in service prices.　　In general, China's services sector has more regulation and less supply, so it is possible to have a big rise. In fact, most of the stars that have been rising in prices over the years, such as education, health care and rent, belong to the service sector.　　In China's CPI statistics, the service industry occupies a relatively small weight, so just look at the CPI statistics, often with people in the eyes of a certain gap in price increases. Asset prices have a more direct and sensitive response to currency issuance than prices.　　Generally speaking, the most sensitive reaction should be the stock market and the futures market, and then the real estate, and finally, the asset price rise to a certain extent, may be passed to the price. Why is the market more sensitive than the property market? The main reason should be stock, futures liquidity is good, housing liquidity is poor, and the first inflow of surplus money is always a better liquidity.　　So stocks and futures are more responsive to the money supply. We see that the recent low of A shares appeared last November. The recent lows in international oil prices, which emerged last December (international oil prices have little to do with the renminbi), but the so-called "China factor" is an important reason for this round of international commodity inflation.　　The overall recovery of the property market is the last month or two. In terms of CPI alone, China's CPI is still in a negative phase: May CPI 1.4% (April is 1.5%), February-1.6%). However, many people are worried about inflation, after the international oil price from the lowest point of more than a few, after a share also roughly doubled, the long-lost "Wenzhou Fried Housing Regiment" reappear.　　In Shanghai, a few years have not opened Tomson one product (an average price of more than 100,000 yuan per square metre of the apartment) finally someone under the list.　　So, does the rise in asset prices necessarily lead to rising prices? It should be said that there is indeed a relatively close relationship between them.　　For example, the rise in property prices, rents will generally rise, although the increase may not be in unison.　　The rise in the price of industrial raw materials may be absorbed partly by increased efficiency, but if the gains exceed a certain limit, industrial goods may also rise.　　The rise in prices, such as rent, will lead to an increase in human costs, which will directly lead to higher prices for services and so on. Of course, it takes a certain amount of time to rise from asset prices to rising prices, and for industries with oversupply, it may be forced to digest some of the gains, which in the end are not so strong as rising prices.　　Of course, an industry that is in short supply, with strong bargaining power (such as domestic oil prices, etc.) may hitch a ride, and rising asset prices provide them with a great excuse for further boosting the price of their products. So, how long will the time of delivery last? The general expectation is that the overall rise in prices could take another year, and that inflationary pressures may come sooner if the world economy recovers well.