What the chart shows is the remarkable growth across all the components, but the unreal growth in investment which now makes up almost 50% of China's economy (the fact that consumption grew by 75+% likely allowed for the other components to grow even faster as the citizens saw their lifestyles dramatically improve, allowing for the flexibility needed with central control by the government).
But, much like the exponential growth in China's currency holdings this investment growth is not sustainable, especially in a world that appears to have more than enough supply for the current (and waning) level of aggregate demand globally. So this begs the question... if there will be a rebalancing away from investment, will it happen due to the pace of Chinese consumption simply increasing (i.e. will China "save" the global economy) or will investment growth (and the Chinese economy) slow substantially?
Source: Chinability
Looks like a giant misallocation of capital to me.
ReplyDeleteThanks for the insightful graph Jake.
Cheers,
PW
Must mirror our over consumption and small investment. Imagine that balance makes sense (via MMT or other hocus pocus) but it cannot be good long term.
ReplyDeleteI'll likely have a post tomorrow or Friday on just that. Our consumption is up only 18% the past decade, but investment is down 6%. Seems like they are "stealing" our production capacity due to a cheap currency and some horrible policy aimed at maximizing corporate profits at the expense of the average worker...
ReplyDeleteI think you need to check your axis... at a bit over 1b people in China this would indicate that they are consuming a little under $2 each per year...
ReplyDeleteIt's trillions. Will fix when I am near a computer.
ReplyDeleteThe amount of fixed asset investment is not really the question is it? Its the RoI on that investment that matters. At what point does the incremental investment not help drive the other components - trade looks pretty played out (customers certainly not so willing or able) so the salvation of the economy lies in boosting that red line...
ReplyDeleteChina is a mess Country. There is no such thing as a soft landing after pumping their GDP by as much liquidity as they did. They have not collapsed, but their markets are on a downward slope.
ReplyDeleteI must agree with penny stocks on this subject.
ReplyDeleteEnormous capital misallocations have ugly consequences when they eventually come home to roost. China has yet to face these consequences, yet collapse remains a possibility in my view.