Is China Over-Investing and Does it Matter?

By Il Houng Lee, Murtaza H Syed, Liu Xueyan

November 27, 2012

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Il Houng Lee, Murtaza H Syed, and Liu Xueyan. Is China Over-Investing and Does it Matter?, (USA: International Monetary Fund, 2012) accessed November 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Consumption, Credit, Economic sectors, Emerging and frontier financial markets, Financial markets, Financial sector, Financial services, Money, National accounts, Real interest rates

Keywords: Asia and Pacific, Banking system, Banks, Capital-to-output ratio, China, China's growth, China's investment, Consumption, Cost of capital, Credit, Emerging and frontier financial markets, Financial sector, Global, Interest rate, Intertemporal Consumer Choice, Investment, Investment norm, Real interest rates, Social Welfare, WP

Publication Details

Pages:

22
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/277
Stock No:

WPIEA2012277
ISBN:

9781475562675
ISSN:

1018-5941

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