Saturday, April 16, 2011

Something for the weekend

China’s Bad Growth Bet

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, China’s leader reacted by increasing fixed-investment - infrastructure, real estate, and industrial capacity. Thus, China did not suffer a severe recession – as occurred in Japan, Germany, and elsewhere in emerging Asia in 2009 – 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.

Posted by drewster @ 02:31 PM (1510 views)
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One thought on “Something for the weekend

  • Drewster, I think you have encapsulated it all in the above.

    Does anyone have a shoehorn?

    Reply
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