By Park Hyong-ki
Staff Reporter
While a number of economists argue that China will continue its turbo-charged growth and overtake the United States as the world's economic leader, caution over the possible bursting of bubbles is also growing.
Some private institutes say it would be wise to closely monitor China's overheating assets market and exercise caution when investing in the region after it hosts the 29th Olympiad next summer.
LG Economic Research Institute said that the chances are growing for China's assets bubble to burst after the Olympics fever subsides as most investments in its equity and real estate markets have been based on speculation that a bubble, if any, will not pop at least until the Olympics are over.
After 2001 when China won the bid to host the world's biggest sporting gala, real estate prices in its capital and other provincial cities started to surge. Housing prices in Beijing grew more than the country's average growth over the past two years, as investor sentiment has been strong due to the Olympics and its positive effect on the economy. Additionally, rising income among city dwellers and fast urbanization spurred the real estate market further.
``We can not rule out the possibility that the Chinese real estate market could enter a long-term slump due to weakness in investor sentiment in the post-Olympics period,'' the report said.
For instance, Barcelona and Seoul saw their real estate markets grow rapidly prior to hosting the summer games in 1992 and 1988, respectively. In the years immediately following the games, Barcelona's real estate prices started to lose steam, while Seoul's market bubble expanded.
The institute said that China's real estate market might face a slowdown like Barcelona after the Olympics, with a huge amount of debt going sour.
Also, its stock markets have been bullish since last year with price-earnings ratios reaching 69 times the average, in part thanks to the Olympics. When the games end, it is likely to dull investors and make the markets undergo heavy corrections, LGERI said.
Should this happen, the world's fastest growing economy, which is also Korea's top export destination, will go through some contractions in consumption and mortgages.
Therefore, it advised investors to strengthen hedging against a possible assets bubble burst in China in the wake of the Olympics.
However, an economist at BNP Paribas Asset Management in France begs to differ.
``I strongly believe China will grow further even after it holds the 2008 Beijing Olympics as the games will only account for 4 percent of its GDP, compared with 28 percent for Korea's 1988 Olympics,'' said Claude Tiramani.
He noted that China's infrastructure development for the Olympics makes up a small portion of its overall fixed assets investment, which is mostly concentrated on boosting domestic consumption and developing rural areas.