With the risk of large-scale and systematic financial market crashes all but diminished, 2011 marks the beginning of the post-crisis era for the global economy and financial markets. But an old friend of 2010—liquidity—will linger in the new year. Li Daokui, a professor at Tsinghua University and member of the Monetary Policy Committee of the People's Bank of China, believes excess liquidity will be present for the next three to five years. Li shared his view during an interview with Securities Times. Edited excerpts follow:
In 2011, fluctuations in the international financial market will be unavoidable. Excess liquidity will remain as the world economy continues to develop. But this is good news for the West, because under the current circumstances Western economies have to push up financial asset prices to revive their economic vitality. One of the major symptoms of the financial crisis has been the substantial drop in asset prices. Therefore, mild inflation with relative high asset prices is acceptable. In the next three to five years, inflation on a global scale and asset price increases will dominate the world economy, while deflation is unlikely.
Although some European countries have debt troubles, most of the developed economies, such as the United States, Japan, Canada, Germany and France, have picked up momentum with the United States taking the lead. Many economists estimated the U.S. economy would grow 3 percent on the basis of its quantitative easing. Thanks to the economic growth in emerging economies, Japan might be able to keep positive growth in 2011. And Germany's economy, taking advantage of economic growth in emerging economies and the euro depreciation, will remain upbeat.
Generally speaking, Europe is in better shape than the United States, though it has mild internal coordination problems. In 2011, the European Central Bank might follow the United States in pumping money into the market to stabilize the financial market in the short term. Meanwhile, the depreciation of the euro would be conducive to the European economic revitalization. In the first half of 2011, the euro will continue to depreciate against the U.S. dollar, but will pick up value after the European debt problem is totally resolved.
Back to China—its economy will keep a robust growth momentum in 2011. According to an estimate from the Center for China in the World Economy at Tsinghua University, the Chinese economy might grow 10.3-10.5 percent in 2010, and 9.5-10 percent in 2011. The current infrastructure investment in railway, disaster relief and energy conservation will ensure that fixed-asset investment in 2011 is maintained at a relatively high level.
The Chinese capital market, as of now, can best be described as healthy—stocks are reasonably priced and bubbles have been deprived of air. In terms of the property market, the Chinese Government will continue to take various measures to increase the transaction cost and the cost of holding onto property, so houses and apartments might lose their shine as hot investment subjects, especially compared with the capital market.