Is China Over-Investing and Does it Matter?
IMF Working Papers, November 27, 2012
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Bibliographic details
- Authors: Il Houng Lee, Murtaza H Syed, Liu Xueyan
- Published: November 27, 2012
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475562675.001
Key findings
- China’s investment is now close to 50 percent of GDP.
- China’s capital-to-output ratio is within the range of other emerging markets.
- China’s economic growth rates stand out, partly due to a surge in investment over the last decade.
- China’s investment is significantly higher than suggested by cross-country panel estimation.
- The deviation of actual investment from the panel-predicted norm has been accumulating over the last decade and is now nearly 10 percent of GDP.
- Because investment is predominantly financed by domestic savings, a crisis appears unlikely when assessed against dependency on external funding.
- The cost of elevated investment is not absent but is distributed to other sectors via a hidden transfer of resources, estimated at an average of 4 percent of GDP per year.
Quantitative measures and comparisons
- Investment level: close to 50 percent of GDP.
- Accumulated deviation from panel-estimated investment norm: nearly 10 percent of GDP.
- Estimated hidden transfer to other sectors: 4 percent of GDP per year.
- Paper length: 22 pages.
- Publication date: November 27, 2012.
- Series: Working Paper No. 2012/277.
- DOI: https://doi.org/10.5089/9781475562675.001
- ISBN: 9781475562675
- ISSN: 1018-5941
Interpretation and risks
- High investment has contributed materially to China’s standout growth rates over the last decade.
- The nature of financing—predominantly domestic savings—reduces the likelihood of a crisis driven by external funding dependency.
- Nonetheless, high investment entails economy-wide costs manifested as a persistent hidden transfer of resources away from other sectors, quantified at an average of 4 percent of GDP annually.
- The scale and persistence of the investment deviation (nearly 10 percent of GDP) are larger and more persistent than those experienced by other Asian economies in the run-up to the Asian crisis.
Subjects and keywords (as listed in the paper)
- Subjects: 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
Il Houng Lee, Murtaza H Syed, and Liu Xueyan. "Is China Over-Investing and Does it Matter?", IMF Working Papers 2012, 277 (2012), accessed 9/17/2026, https://doi.org/10.5089/9781475562675.001