What Can China Learn about the Way Property Price Bubbles Affect GDP Growth? A Bubble Economics Perspective

Abstract

How far do China’s property prices need to drop in order to trigger a GDP reaction that looks like a price bubble bursting? What does this question tell us about the way Bubble Economies work? In this paper, argue for a separate analysis of ‘Bubble Economics’ – as the non-linear and often “systemic” (in the mathematical sense of the word) forces which cause significant misallocations of resources. Even the term Bubble Economics can help us keep in mind that when we look at such events, we are witnessing discontinuous jumps representing the radical change in underlying economic structures and fundamentals -- if even for a limited time.

Keywords: China recession, bubble economics, non-linear dynamics, asset bubbles, bubble economics

JEL Classification: D58, N15, L85, G01