Economist: China's capital spend to overtake US

Economist: China vs US capital spend

The Economist this week reported China's fixed-asset investment leapt by an astonishing 39% in the year to May, or by a record 49% in real terms.

This year China’s domestic investment in dollar terms is likely to exceed that in America (see chart).

There are concerns that a lot of the investment is directed by the Chinese government, and hence a lot of it would be wasted in pushing out overcapacity.

Investment amounted to 44% of GDP last year (compared with 18% in America), which many economists reckon was already too much. Worse still, as well as forcing state firms to invest, the government is directing state-owned banks to lend more, despite falling corporate profits.

The fastest expansion in spending has been in railways (up by 111% this year). As a developing country, China still lacks decent infrastructure; railways, in particular, have long been an economic bottleneck. Investment in roads, the power grid and water should also yield high long-term returns by allowing China to sustain rapid growth.

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Further evidence that increasingly New Zealand will be engaging more with China as reliance on our traditional Western markets wane. The Americans will struggle with maintaining market dominance, and the developing economies will no doubt emerge stronger as a result of this recession.

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Kenneth is Director of Euroasia. He is passionate about languages and cultures.