Is China Over-Investing and Does it Matter?
23 Pages Posted: 21 Dec 2012
Date Written: November 2012
Now close to 50 percent of GDP, this paper assesses the appropriateness of China's current investment levels. It finds that China's capital-to-output ratio is within the range of other emerging markets, but its economic growth rates stand out, partly due to a surge in investment over the last decade. Moreover, its investment is significantly higher than suggested by cross-country panel estimation. This deviation has been accumulating over the last decade, and at nearly 10 percent of GDP is now larger and more persistent than experienced by other Asian economies leading up to the Asian crisis. However, because its investment is predominantly financed by domestic savings, a crisis appears unlikely when assessed against dependency on external funding. But this does not mean that the cost is absent. Rather, it is distributed to other sectors of the economy through a hidden transfer of resources, estimated at an average of 4 percent of GDP per year.
Keywords: Investment, China, Economic growth, Welfare, Economic models, Cross country analysis, cost of capital, gdp growth, Social Welfare, Intertemporal Consumer Choice, Banks, real gdp, economic growth, tfp, capital stock, growth model, growth rates, capital formation, volatile capital flows, growth rate, capital productivity, gross capital formation, gdp per capita, capital income, capital spending, total factor productivity, economic growth rates, capital flows, volatile capital
JEL Classification: E22, D60, D91, G21
Suggested Citation: Suggested Citation