Thoughts on ways to improve the management of professional services firms

Wednesday, December 07, 2011

Why Chinese over-investment is important

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.

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