December 13, 2007. CEIBS Lujiazui International Finance Research Center -- At the CLFC's successful hosting of its fourth finance salon today, CEIBS Economics and Finance Professor Xu Xiaonian tackled the timely issue of global liquidity in a speech entitled "Excess liquidity and asset price bubble".
In his keynote speech Prof. Xu examined the causes, effects, and possible solutions of global excess liquidity within the context of the U.S. and China economies. He identified the source of the problem as the U.S. Federal Reserve's long-term low-interest-rate monetary policy. Prof. Xu explained that with currency in such large supply, traditional ROA (return on assets) had decreased and this, in turn, had spurred alternative investment options such as sub-prime mortgages. The end result was investors' inability to accurately price risks, with private funds and mutual funds further driving the liquidity, he said. He pointed to the rising price of US assets and the resulting bubble effect on those assets -- particularly evident in the real estate market -- as evidence of excess liquidity in American financial institutions. This is an indication that the systematic risk is getting worse, Prof Xu said.
Professor Xu Xiaonian tackles the timely issue of global liquidity in a speech entitled "Excess liquidity and asset price bubble".
Turning to China he explained that, unlike the U.S., the cause of China's excess liquidity is structural. Prof. Xu told his audience that reform, as opposed to monetary policy, is the key to getting rid of excess liquidity. He explained that monetary policy merely transfers liquidity from both the financial market and tangible assets into the banking system. In stressing the need for China to aggressively combat the problem of excess liquidity, he cited Japan's unsuccessful efforts in the 1990s to use passive elimination to curb its highly liquid economy. This measure, he pointed out, had led to the collapse of Japan’s banks and wide-scale writing off of bad debts. Prof. Xu urged China to use direct financing to transfer excess funds out of its banks and into the Chinese economy's tangible assets. He made it clear that a crucial part of the solution would involve a transformation of government's role and responsibilities.
Dr. Xu's comments were based on his years of experience in his field. In 1996, he received the Sun Yefang Economics Prize, the highest Chinese award in the field, for his research on China's capital market. Since 1999 he has been managing director and head of research of China International Capital Corporation Limited (CICC); he is a former research fellow for the Development Research Center of China's State Council; he is former vice chairman of Goldman Sachs Gao Hua Securities Co., Ltd.; former senior economist with Merrill Lynch Asia Pacific; and he served as consultant to the World Bank in Washington DC in 1996.
In delivering the opening address at today's salon event, CEIBS Vice President and Co-Dean Zhang Weijiong said of Prof Xu, "Scholars such as Prof. Xu Xiaonian at CEIBS, who have extensive real life experience as well as rich theoretical background, will bring to the salon new ways of thinking, new methodologies and perspectives."
Professor Xu Xiaonian is delivering the speech
Other industry leaders, government officials and academics attending the event included:
- Secretary of the Communist Party of China Shanghai Financial Working Committee & Vice Secretary of Discipline Working Committee Zhou Ping,
- Deputy Director-General of the Shanghai Municipal Financial Service Office Fan Yongjin,
- Director of the Department of Foreign Exchange Administration of the Shanghai Headquarters of the People's Bank of China & Deputy Director of Shanghai Branch of the State Administration of Foreign Exchange Zheng Yang,
- representatives from China Insurance Regulatory Commission's Shanghai Bureau; Shanghai representatives of the City of London; top executives from Shanghai Pudong Development Bank, Heng Seng Bank Ltd., Penghua Fund Management, and Orient Securities Co. Ltd; and CEIBS professors Xu Bin, and Zhao Xinge.
During the event, CEIBS President Zhu Xiaoming reaffirmed CEIBS long-term commitment to hosting similar salons which will provide a platform for more experts, scholars, and industry leaders to engage their audiences in stimulating discussions.
With the support of the Shanghai Municipal People's Government and the Pudong New Area People's Government, the CLFC was co-founded by China Europe International Business School (CEIBS) and Shanghai Lujiazui (Group) Co., Ltd. to serve as an authoritative and influential think tank for the development of Shanghai as an international financial center. Institutional members of the Board include: Shanghai Municipal Financial Service Office, Shanghai financial regulators, Bank of Shanghai, HSBC and Mindray.
