By Zhang Liping, Research Institute of Finance, Development Research Center of the State Council (DRC)

Report No 126, 2014 (Total No 4625)

Summary:

China is in a critical period of economic restructuring. Avoiding the negative effect caused by asset bubbles is important for the country to have a smooth economic transformation. Although Germany went through three economic transformations after World War II, it didn't suffer drastic fluctuations in asset prices, except for overcapacity in the Ruhr during the first transformation. Germany is one of the very few developed economies in the West that properly prevented and handled the asset bubbles. Germany's successful experience offers lessons for China. In general, Germany's experience includes: learning from historic lessons to stabilize commodity and housing prices; making good theoretical and practical preparations in advance; taking full advantage of regional economic integration; and adhering to the general direction but also giving emphasis to details in transformation.