Chinese economists and scholars are expressing some concerned about the amount of the U.S. Rescue Package, worried that the massive amount of liquidity could lead to rampant inflation and new asset bubbles. At a forum in Beijing, Huang Qifang, a former mayor of Chongqing, called the package “a fierce flood and a savage beast.” “The newly launched $1.9 trillion rescue plan will largely be funded with a new round of money printing. It will inevitably result in massive liquidity and inflation,” Huang told a forum in Beijing on Monday.
According to a report in South China Morning Post, “Most members of Beijing’s policymaking circle side with the critics, and have been on high alert for the possible spillover effects since the plan was unveiled in January.”
Guo Shuqing, who oversees more than 300 trillion yuan ($46 trillion) in banking assets as chairman of the China Banking and Insurance Regulatory Commission, cautioned last week about the “side effects” of the plan, and warned that a giant U.S. market bubble could be forming. “We are very concerned about the financial markets, particularly the bursting of a foreign financial asset bubble,” he said.
It is also unclear what effect the bailout package will have on the value of Treasury securities, with China the second largest holder after Japan and the effects on the RMB-dollar relationship.
