A new paper released by the IMF confirms: China is heavily overinvesting—ten percent or more of GDP—with the cost mostly borne by households. Although this won’t be shocking news to Via Meadia readers, it’s good to see the IMF exploring what might end up being the biggest economic bubble in history. From the paper’s conclusion:
the challenge now is how to return to a more “normal” level of investment without compromising growth and macroeconomic stability. Obviously, reaching the level itself should not be the only goal, but it should be accompanied by reforms that would raise productivity and efficiency, while ensuring that the fruits of China’s remarkable growth are shared more equitably across different economic agents, in particular ordinary Chinese households.
Easier said than done. Because of its closed financial system, Chinese savings are artificially high, fueling malinvestment. And the only way the Chinese government knows how to deal with a slowing economy is by throwing money at more enormous infrastructure projects.
One of the paper’s authors, the Financial Times tells us, is a fellow at the powerful Chinese government body responsible for economic planning. But even if the Communist Party leadership agrees to lower investment, it’ll require a Herculean performance by the massive government bureaucracy to successfully guide the fastest growing, most populous country in history without triggering an economic crisis along the way.