Tag Archives: investment

Rebalancing Act, Part Two – On the Extremity of China’s Investment-led Development Model

DANIEL ROARTY

The recently released data on China’s 3rd quarter growth seems optimistic on the surface – while many analysts have been predicting a gradual slowdown in the Chinese economy, 3rd quarter figures show it accelerating from 7.5% growth in the previous quarter to 7.8% this quarter. However, rapidly expanded credit enacted earlier this year is mainly responsible for this acceleration – industrial output, energy output, and exports all slumped in the same period. Conversely, investments in transportation infrastructure and sewage systems skyrocketed. These figures lead to the conclusion that China is still heavily dependent on investment for economic growth and that it has yet to begin a long-awaited rebalance away from investment-led growth to consumption-led growth.

This post will investigate China’s rebalancing from a historical perspective, comparing China’s consumption to GDP ratio to that of other countries using data from the World Bank, and will end with some conclusions that can be derived from this comparative historical analysis. Continue reading

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Rebalancing Act – On China’s Economy

DANIEL ROARTY

What a difference five years make. Back in 2008, as Beijing welcomed the world to its Olympic games, it seemed as if it was the next great, unstoppable superpower. Analysts were, with full confidence, running straight extrapolations of its 8-10% yearly growth rates decades into the future. From that time until now, China has approximately replicated the entire US commercial banking system, with overall credit jumping from $9 trillion to $23 trillion and creating what some analysts have called a credit bubble “unprecedented in modern world history.” China’s surging GDP rates in the past decades have mainly been fueled by investment-heavy growth. This model, however, is quickly losing its power, and China’s falling GDP growth rates raise an interesting debate on the roles of investment and consumption in China’s development. Continue reading

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