Greenspan Speaks on China

From Bloomberg :

Former Federal Reserve Chairman Alan Greenspan said he was concerned Chinese stocks might undergo a ``dramatic contraction'' after its main stock index jumped more than 90 percent this year.

The benchmark CSI 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, rose to a record 3938.95 today. The index more than doubled last year as investors bet corporate profits would be boosted by the world's fastest-growing major economy.

``It is clearly unsustainable,'' Greenspan told a conference in Madrid today by satellite. ``There is going to be a dramatic contraction at some point.''

3 things China has done to slow down its economy are:

1. The People's Bank of China on May 18 announced it will let its currency rise or fall 0.5 percent a day, up from 0.3 percent.

2. The central bank also raised interest rates for a fourth time in the past year

3. and ordered banks to put aside more money as reserves.

A somewhat more dramatic spin on China from Nouriel Roubini:

``The Chinese have lost control of monetary policy and now it has reached the stock markets,'' said Nouriel Roubini, chairman of Roubini Global Economics LLC in New York. ``There's a bubble, and eventually it's going to collapse.''

By the way, Chairman Greenspan is sticking with his previous prediction of a chance of a recession in the US this year at 1/3.