China Tells

China’s GDP growth has been continually criticized on the over dependency on Investment (See Graph from Chinatells). Naturally, the next question is: whether such a growth mode is sustainable. The pessimists argue that no country has sustained more than 10 years of increase in investment lead growth. On the other hand, the bull camp opinions that the return on capital in China is still ludicrous and has room to grow. One of the supporting evidences is the Incremental Capital – Output Ratio (ICOR). ICOR measures the additional capital needed to obtain a certain amount of output. The higher the level of ICOR, the lower the efficiency of capital usage. According to a latest estimate, China’s ICOR has been stabilized around 4 in the last three decades, which is the most efficient among a list of countries. As a comparison, the efficiency of capital in Japan is horrible. The ICOR in South Korea and USA both went up significantly during the last ten years. The only exception in developed world seems to be Singapore, who went through a lowering ICOR. Based on such fact, China still has room to grow at a reasonably fast speed depending on the capital investment.

中国国民生产总值发展很快，其中主要收益来源于投资增长。于是许多经济学家说中国的经济过于依靠投资，因此不可持续。上图比较了中国和其他一些国家地区在过去三十年中的边际资本率变化。图表显示，中国的资本使用效率在国际上处于领先水平，再多的资金投入中国，还是比其他国家地区更有可能获得高额回报。