Asia Sentinel, 31 Dec 2008
China is finding out the hard way that investment is not an end in itself. The object of economic is to satisfy consumption. Investment is merely a means of getting there. High rates of investment are fine – so long as someone can afford to buy all the new housing and all the fruits of new factories and offices. Clearly in China the absurdity of investment rates of 45 percent of gross domestic product – compared with maximum sustained rates of 35 percent in Japan, Taiwan, Korea etc during their periods of maximum growth – is finally coming home to roost.
The danger for the world is that China’s leadership will see another export drive as a way out of the hole they have dug for themselves. If they try, one can confidently predict a surge in protectionism that will undo two decades of liberalization, or US policies aimed specifically at trashing the dollar’s value in order not only to undermine China’s export push but the worth of its almost US$2 trillion worth of securities.
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