Friday, March 22, 2013

Can China's Investment Boom Keep Going?

China's investment share of GDP is the highest in history. The graph below shows just how high it is compared to other countries both developing and developed.

Michael Pettis in his new book The Great Rebalancing makes the point that China is not an export-driven economy, it is an investment-driven economy.

Australia has benefitted enormously from this investment-driven model, but it must end eventually.

The great dream of Australian policy-makers is that the eventual rebalancing of the Chinese economy away from investment towards consumption will boost Australian exports of services, agricultural products and advanced manufacturing. Let's hope so because the investment slowdown will be matched by increasing supply of key Australian mineral and gas exports.  

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