• Sunday, October 04, 2015

Andy Xie: China's investment rate set to halve

Staff Reporter 2012-08-28 13:09 (GMT+8)
Construction of the Three Gorges Dam continues even as China's economy sees a slowdown this year. (Photo/Xinhua)

Construction of the Three Gorges Dam continues even as China's economy sees a slowdown this year. (Photo/Xinhua)

China's investment has accounted for 50% of its GDP, a percentage which will decline to 25% in the next ten years if exports do not revive, says independent Chinese economist Andy Xie, according to our sister newspaper China Times.

As of the end of June, the outstanding loans designated to support fixed assets investment amounted to 20.28 trillion yuan (US$3.18 trillion), an increase of 10.3% year-on-year and a 0.4 percentage point rise from the first quarter to the second quarter, according to the latest figures released by the People's Bank of China. Experts believe this is a sign the growth of investment is speeding up, which will push the increase of GDP.

The yearly growth of fixed assets investment will reach 20% as infrastructure increases steadily, said Lian Ping, chief economist at Bank of Communications.

Xie, the former Morgan Stanley star chief Asia-Pacific economist well-known for his provocative and pessimistic views on China's economic outlook, insists on his contrarian view however, saying that Beijing cannot inject money to overcome the challenge of an economic slowdown like it did in 2009 with its 4 trillion yuan (US$629 billion) stimulus measures. "The old road has come to an end," Xie was quoted by China Times as saying.

Chinese investors have an expectation that the government will launch a stimulus package as its economy staggers. This explains why bulk stock prices have surged 15% while the stock market in the United States has climbed to its highest level in the past five years. Xie, however, doubts the increase will continue.

The current economic slowdown cannot be solved by stimulus policies given the way the market economy is closely connected. It is impossible to solve part of the problem to bring about an overall recovery, Xie said, predicting that high growth is unlikely to be seen again as China faces an economic cycle which is totally different from before.

Beijing should offer large-scale tax cuts instead of pursuing an expansionary monetary policy, which is a prerequisite for an expected boom in the stock market, Xie said.

Regarding the prospects of the real estate market, Xie said the market has a long-term bearish outlook as the country's population will begin to decline from 2020. "Real estate prices will forever slide once the population begins to decline," the economist who accurately predicted economic bubbles including the 1997 Asian financial crisis and subprime mortgage crisis in 2008 was quoted by the newspaper as saying.

Other analyst echoed Xie's remarks. Pan Jiancheng, deputy director of China Economic Monitoring & Analysis Center at China's National Bureau of Statistics, said the current downgrade of economic growth is a "normal phenomenon" and the country is unlikely to see double-digit growth again.

Lu Ting, a Hong Kong-based economist at Bank of America-Merrill Lynch, said China's economy has not stabilized after Beijing relaxed certain policy controls in May. He predicted along with weak properties investment and exports, GDP growth this year will decline from 9.2% last year to 7.7%. GDP growth will continue to slide if Beijing does not adopt constructive financial and monetary policies, he said.

Who`s who »
Li Zhanshu (栗戰書)

Li Zhanshu is director of the General Office of the CPC Central Committee and a member of the Politburo. A native of Pingshan county in Hebei province, Li was born in 1950 and joined the party in ...