Could what this article says also be applicable to India? When i witness the thousands of empty apartment buildings in the small town where my MIL lives, population less than 50,000, I cannot but feel that it does. Unless rented out or sold with profits and rents ploughed back into the economy the 12 million empty flats are a dead weight on the Indian economy. ******************************* Six-point-eight trillion dollars. Thats according to a report from Chinas National Development and Reform Commission and the Academy of Macroeconomic Research, written up here in the Financial Times. The report says that amount has been ineffective investment. For sure, $6.8 trillion is a difficult figure to imagine. Thats two years of output for the entire German economy . Its more than four times as much as is invested in S&P 500 index funds . Even in the enormous Chinese economy, thats practically half of the investment between 2009 and 2013, the period covered by the investigation. This is likely to have pretty grim effects on Chinese economic growth in the years ahead. Investment of whatever variety initially shows us up in GDP figures. For example, the spending on building a bridge. Initially, the bridge construction will boost GDP simply because of the spending needed to finish it. But after that, the economic effect of the bridge depends on a lot: Where is it from? Where does it lead to? If its a useful investment, it could keep boosting spending by making consumers journey to a city less arduous, and allowing them to go to the shops more often. If its a bridge to nowhere, its not likely to have that effect, and will simply be a waste of resources without any positive growth effect in the future. China seems to have built the equivalent of $6.8 trillion in bridges to nowhere. According to the FT, the authors are blaming the investment on low interest rates and other forms of government stimulus, suggesting that theres been a sort of malinvestment . The countrys deserted ghost cities are probably the ultimate symbol of this wasted investment. And if thats the case, its not likely to be the last of it: The Peoples Bank of China just slashed interest rates, and it looks like theres probably more coming. The economy has slowed significantly in recent years: The government now targets a growth rate of 7.5%, well down from the double-digit rates seen before the crisis, and many analysts believe they will struggle to even reach that. Thats not all: The problem is exacerbated by graft and corruption among the countrys autocratic elite, which skims off the investment whether its wasteful or not. If the reports authors are correct about the causes, dont expect to see an improvement in the quality of Chinas investment any time soon. finance.yahoo/news/chinese-economy-facing-6-8-085100243.html
Posted on: Sat, 29 Nov 2014 11:21:39 +0000
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