Is China Over-Investing and Does it Matter?

Lee, Il Houng; Syed, Murtaza; Liu, Xueyan

doi:10.5089/9781475562675.001

Cited by 83 publications

(32 citation statements)

References 13 publications

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“…While these investment rates—some of the highest in the world, even by Asian standards—had undeniably a positive effect on production capacity and output, the evidence shows that over time public capital accumulation also suffered from efficiency problems and diminishing returns: in particular, the incremental capital‐output ratio (ICOR) increased from an average of less than 3 in the 1990s to an average of 8.1 during the past decade. By contrast, in China for instance, a country where government investment is widely seen as highly inefficient, ICOR rose from 3.8 to only 4.6 between 1983 and 2010 (Lee et al ., ). Thus, the diminishing returns to capital hypothesis may be useful to understand why some countries may transition to a slower growth path before catching up with richer countries.…”

Section: Causes Of Middle‐income Trapsmentioning

confidence: 97%

Caught in the Middle? The Economics of Middle‐income Traps

Agénor

2016

Journal of Economic Surveys

128

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This paper provides an overview of the recent analytical and empirical literature on middle‐income traps. The first part examines the descriptive and statistical evidence on these traps. The second discusses the various arguments that have been put forward to explain the existence, and persistence, of middle‐income traps. These arguments include diminishing returns to physical capital, exhaustion of cheap labor and imitation gains, insufficient quality of human capital, inadequate contract enforcement and intellectual property protection, distorted incentives and misallocation of talent, lack of access to advanced infrastructure, and lack of access to finance, especially in the form of venture capital. The third part considers public policies aimed at avoiding, and escaping from, middle‐income traps. The concluding part identifies a number of directions in which the empirical and theoretical literature could fruitfully evolve.

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Section: Causes Of Middle‐income Trapsmentioning

confidence: 97%

Caught in the Middle? The Economics of Middle‐income Traps

Agénor

2016

Journal of Economic Surveys

128

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“… See Lee, Syed, and Xueyan () for a cross‐country comparison of investment‐to‐GDP ratios, or Shi and Huang () for evidence of overinvestment in western Chinese provinces. …”

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confidence: 99%

Towards recoupling? Assessing the global impact of a Chinese hard landing through trade and commodity price channels

Gauvin

Rebillard

2018

World Economy

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China's rapid growth over the past decade has been one of the main drivers of the rise in mineral commodity demand and prices. While concerns about the sustainability of China's growth model are rising, we assess to what extent rebalancing through a hard landing in China would impact other countries. After reviewing the main arguments pointing to a hard landing scenario—historical rebalancing precedents, overinvestment, unsustainable debt trends and real estate bubble—we use a global VAR methodology adapted to conditional forecasting to simulate the impact of a Chinese hard landing. We model metal and oil markets separately to account for their different end‐use patterns and consumption intensity in China. According to our estimates, emerging economies would be hardest hit—with a 7.5% cumulated growth loss after 5 years—in particular in Emerging Asia and in commodity‐exporting regions such as Latin America. The “growth gap” between emerging and advanced economies would be considerably reduced, leading to partial recoupling. In the light of these results, both the “commodity supercycle” and sustained convergence observed in emerging economies over the past decade could be to a large extent attributed to the high and unbalanced growth pattern in China.

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“…Yet another channel through which monetary policy may have inadvertently contributed to inequality is through the transfer of resources from one sector to another, as explained in Lee, Syed, and Xueyan (2012). Through controls in the financial system, resources are transferred from households to the corporate sector, and from SMEs to large corporates.…”

Section: B the Role Of Excess Liquiditymentioning

confidence: 99%

Two Sides of the Same Coin? Rebalancing and Inclusive Growth in China

Lee

Syed²,

Wang³

2013

IMF Working Papers

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This paper uses the Shapley Value decomposition technique to assess the factors behind the rise of inequality in China. It finds that, in many ways, inequality may have been an inevitable by-product of China's investment and export-led growth model. Between Chinese households, we find that the most important factors explaining income inequality are location, education, access to health insurance, and labor market variables, including the sector of employment and enterprise size. Across China's provinces, divergences in per capita incomes are driven by the relative level of capital-intensity, public spending, financial access, privatization, and urbanization. In addition, excess liquidity may have exacerbated inequality in the last decade, by driving up property prices and the wealth gap. Based on these results, policies that could help broaden the benefits of growth in China include maintaining prudent monetary and credit policies, a more progressive fiscal tax and expenditure system, higher public spending on health and education, deregulation and reforms to increase competition, measures to raise labor incomes and assist vulnerable workers, and better access to finance for both households and SMEs, including in rural areas. Not surprisingly, given the argued nexus between China's growth strategy and inequality, many of these reforms are the same ones that would help rebalance its economy toward consumption and household incomes. JEL Classification Numbers: D31, E21, G18, H5, J30, O15.

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Is China Over-Investing and Does it Matter?

Cited by 83 publications

References 13 publications

Caught in the Middle? The Economics of Middle‐income Traps

Caught in the Middle? The Economics of Middle‐income Traps

Towards recoupling? Assessing the global impact of a Chinese hard landing through trade and commodity price channels

Two Sides of the Same Coin? Rebalancing and Inclusive Growth in China

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