Analysis Of The Effect Of The Bubble Economy Of China's Financial Industry

The bubble economy has a long history. From the "tulip crazy" in Holland in the 16th century to the financial crisis in Southeastern Asia, we have suffered the severe strike taken by it. Since the modern has stepped into the information age, the World Economy System is suffering the continuous strike of the speculation hurricane. The purpose of the paper is to study the formation and control of the bubble economy, analysis the finance in China with these theories and then judge the bubbles in the financial market in China.From the theory of the intrinsic financial instability, the author provide definition of the economic bubble and the bubble economy: The economic bubble is that there is illusive boom in financial and real estate markets because of the transformation of financial risk droved by unrealistic high-profit anticipation and speculative wave. The bubble economy is economic situation in which there is much economic bubble in the whole economy because of the rise of uncertainty caused by the credit expansion, more impact of financial libertarianism and unreasonable credit system. In author's view, the economic bubble is different from the bubble economy: the former is the prelude of bubble economy; the bubble economy is the potential outcome of economic bubble.In fact, the transformation of risk and the uncertainty rising from the credit expansion are the two major sources of the intrinsic financial instability. On the basis of that, the author constructs two models-the model of bubble caused by the diversion of financial risk and the model of bubble caused by the rise of uncertainty ,which is caused by the credit expansion. The models show that the transformation of financial risk which lead to the departure of the risk asset price and the rise of uncertainty create the bubble.It is difficult to control and monitor the bubble in the stock market economy. The author proposes some indicators to market and the whole economy. In the stock market, the indictors which can monitor the ratio of the growth rate of stock market value the bubble includes Price -Earning Ratio, to the growth rate of GDP, the fluctuation range of the stock price index and the turnover rate. Furthermore, the indicators to monitor the bubble economy include FIR and the K-Coefficient of Marshall. On the basis of the methods which can control currency crisis, the author analyses and evaluates both the band of warning and the method of parameter. And by the method of parameter the warning system to the bubble economy and the economic bubble is established.In this way, the author finds that there were some bubbles in the stock market from the second half of 2006 to the same stage of 2007 and that the bubble began to rupture in the second half of 2007. But most of the bubbles are structural bubbles. As a whole, we can't find bubble in the whole economy.