Bubbles building in Asia?

Reports suggest governments in China, Korea and Vietnam want to cool off their economies.

By Charley Blaine Jul 28, 2009 6:46PM

On Monday, I noted that U.S. stocks hadn't gotten as pricey as, say, stocks in Asia.


Turns out folks in Asia may be worrying financial markets are a bit overheated.


The Financial Times reported today that China has warned its banks to ensure that unprecedented volumes of new loans are channeled into the real economy.


The government wants to be sure that the cash isn't diverted into equity or real estate markets where, officials say, fresh asset bubbles are forming.


The froth in China may also be occurring in Korea and Vietnam, the report said.


In statements published last week, Wu Xiaoling, the retired deputy governor of the central bank, warned new lending this year would probably reach as high as $1.08 trillion, up a staggering 40% of the entire stock of outstanding loans in just one year.


She called growth excessive and said it would lead to bubbles in the property and stock markets.


The flood of new lending also has implications for the quality of bank loans and the country’s overall growth.


"China's economic recovery is being constructed on the back of a savaged banking system," said Derek Scissors, a research fellow at the Heritage Foundation in Washington, told the Financial Times.


"Tens of billions -- and perhaps hundreds of billions -- of dollars of loans will not be repaid."

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