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IMF Research Warns on China Investments

“BEIJING (Reuters) – China’s economy relies on an excessively high level of investment and risks a potentially destabilizing increase if the government aims to keep growth around current levels for years to come, new International Monetary Fund research suggests.

Already running high as measured by a theory used by economists to assess capital-to-output ratios, investment accelerated between 2007 and 2011 to counter the effects of the global financial crisis, IMF staff wrote in a research paper on China’s soaring investment levels.

“Depending on precise assumptions, over this period, China may have been over-investing by between 12 and 20 percent of gross domestic product relative to its steady-state desirable value,” the report said.

“Even allowing for elevated investment levels associated with most economic take-offs, the econometric evidence suggests that China is over-investing,” it said. “China’s predicted investment norm over the last 30 years has ranged between 33-43 percent of GDP. In reality, it has fluctuated in a much broader band of 35-49 percent of GDP.”

The IMF says its working papers do not necessarily represent the organization’s policy, and that the reports describe research in progress that is published to spur debate.”

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