Andy Xie: China Infrastructure investment is overrated

Andy Xie, our renowned Chinese economist, opined that China’s infrastructure investment is overrated. Below is the excerpt of his recent interview on the issue:

China’s National Development and Reform Commission recently approved investment projects exceeding 1 trillion yuan (US$158 billion) in value, a move which has been hailed by many as a shot in the arm for the country’s slowing economic development.

Independent economist Andy Xie is also dubious about the effects of investments, saying that they do not reflect the Chinese government’s loose fiscal policy.

Xie said the signal for the bottoming-out of the economy is depletion of inventories; at present inventories are still on the rise and output has yet to decrease.

Xie also proposes that policies should be introduced to bolster private wealth, such as tax cuts or greater protection for private property, instead of resorting to the stimulus of investment again, which will cause greater problems further down the line.

In August, realty investment picked up by 17% year-on-year, up from July’s 9.6%, and growth in the start of construction projects bounced to 33.1% year-on-year, up from 25.5% in the previous month.

In view of the recent approval of massive investment in urban rail transportation and other infrastructure projects, infrastructure investments will mark an upturn in the next few months, offsetting decline in manufacturing investments caused by shrinking external demand.

Xie noted that ongoing adjustments to China’s realty market are a result of oversupply rather than the government’s control policies. He said the country’s realty market topped out in late 2010 and early 2011 and will see a cycle of adjustments for several years, citing the examples of the US and Hong Kong, whose realty adjustment lasted six years.

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