Macroscope | Why policymakers in China should beware the cult of the equity
Relying on a stock market bubble to quickly create economic growth is tempting but such an approach seldom ends well
Are stock markets in major Asian nations, like those in the West, in danger of becoming masters rather than servants of their economies? The question has come to the fore lately in China and Japan as these markets increasingly dominate policy, with far-reaching potential consequences.
The temptation for governments, whether in planned, market or semi-market economies, to boost stock prices is growing, it seems, because of the potential this offers for quickly leveraging economic growth. But it is an addictive habit which tends to borrow growth from the future.
For China especially, and to a lesser extent for Japan, this approach could prove to be an excessive concession to the lure of a market economy where booms can be engineered but at the cost of subsequent busts.