According to the International Monetary Fund’s estimates, more than 75% of China’s industries are currently overcapacity, and that fixed asset investments in key sectors such as steel, automobiles, cement, aluminum, and real estate, have been experiencing overinvestment accounting for 40-50% of China's GDP growth in 2005.
However, Goldman Sachs’s latest research paper, "China’s Investment Strength is Sustainable", concludes that there is no such over-investment problem in China. This so-called 'over-investment' problem in China reflects more data quality problems, rather than a true underlying issue. The reported investment-to-GDP ratio is significantly overstated because of the over-estimation of investment, under-estimation of consumption, and under-estimation of GDP
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I think that in some ways China's economic position today is similar to Japan's situation in 1989; the Japanese poured a lot of cash into US assets(particularly real estate) that turned out to be real loser investments. It is certainly possible that we could see a repeat of this with the Chinese. I have posted some further thoughts on this here...
Posted by: Scott Peterson | March 2, 2007 12:56 PM | Permalink to Comment