For some time now, Michael Pettis has been arguing that China has been over-investing and that this over-investment is unsustainable. His most recent piece, How do we know that China is overinvesting?, provides a useful introduction to his arguments. In essence, there is a growing gap between real borrowing costs and the real economic returns on the investment.
Along with exports, heavy Chinese domestic investment has been a key driver in that country's growth. To the degree that Michael Pettis is right, and I think that he is, then the investment and industrial demand that has underpinned Australian mineral exports is likely to slacken.
I must say that's been my feeling all along, but its interesting to see another perspective.
