Saturday, April 16, 2011
Something for the weekend
China has grown for the last few decades on the back of export-led industrialization and a weak currency. When exports collapsed in 2008-2009, Chinaâ€™s leader reacted by increasing fixed-investment - infrastructure, real estate, and industrial capacity. Thus, China did not suffer a severe recession â€“ as occurred in Japan, Germany, and elsewhere in emerging Asia in 2009 â€“ because fixed investment exploded. The fixed-investment share of GDP has increased to almost 50%. The problem, of course, is that no country can be productive enough to reinvest 50% of GDP in new capital stock without eventually facing immense overcapacity and a staggering non-performing loan problem. China is rife with over-investment in physical capital, infrastructure, and property.