Investment rate in China to remain high
Source: Bloomberg News |
May 9, 2012, Wednesday
|
Print Edition
Print Edition
CHINA'S investment rate will remain high over the next five years, risking a buildup of excess capacity that may trigger bad loans for banks, the International Monetary Fund said.
Spending on factories and infrastructure will probably remain above 45 percent of gross domestic product through 2017, Murtaza Syed, the IMF's resident representative in Beijing, said at a press briefing in the city yesterday.
China's investment boom helped reduce the nation's current-account surplus to 2.8 percent of GDP last year, down from 10 percent in 2007.
While the spending may have brought a greater balance to trade flows, it has worsened China's internal imbalances, with investment as a share of GDP rising to close to 50 percent now from 42 percent before the global financial crisis, Syed said.
"Our fear is that if China continues to invest so heavily as a share of GDP, it's just creating the potential for vulnerabilities," Syed said. "What really worries us is that while it looks like China's external imbalances will not be as severe as we had thought - the current account surplus will be lower - the way that China has done it is not optimal."
The IMF estimates that China's current-account surplus, the broadest measure of trade in goods and services, is unlikely to increase above 4 percent to 4.5 percent of GDP over the medium term, whereas previously it had forecast a rise to 7 percent to 8 percent, Syed said. The forecast assumes investment will remain above 45 percent of GDP through 2017, he added.
China needs to rebalance its economy away from a reliance on investment by reducing its savings rate and boosting domestic consumption, Syed said.
Spending on factories and infrastructure will probably remain above 45 percent of gross domestic product through 2017, Murtaza Syed, the IMF's resident representative in Beijing, said at a press briefing in the city yesterday.
China's investment boom helped reduce the nation's current-account surplus to 2.8 percent of GDP last year, down from 10 percent in 2007.
While the spending may have brought a greater balance to trade flows, it has worsened China's internal imbalances, with investment as a share of GDP rising to close to 50 percent now from 42 percent before the global financial crisis, Syed said.
"Our fear is that if China continues to invest so heavily as a share of GDP, it's just creating the potential for vulnerabilities," Syed said. "What really worries us is that while it looks like China's external imbalances will not be as severe as we had thought - the current account surplus will be lower - the way that China has done it is not optimal."
The IMF estimates that China's current-account surplus, the broadest measure of trade in goods and services, is unlikely to increase above 4 percent to 4.5 percent of GDP over the medium term, whereas previously it had forecast a rise to 7 percent to 8 percent, Syed said. The forecast assumes investment will remain above 45 percent of GDP through 2017, he added.
China needs to rebalance its economy away from a reliance on investment by reducing its savings rate and boosting domestic consumption, Syed said.
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