China wasted $6.9 trillion

Nicky G

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China wasted $6.9 trillion on bad investment post 2009 - media

Nov 20 (Reuters) - China wasted an approximate 42 trillion yuan ($6.9 trillion) on "ineffective investment" in the five years from 2009, with the problem worsening in the past two years, a government official and an economist were quoted as saying in the local media.

From relying too much on investment to lift the economy to supplying state firms with cheap loans that fuelled unnecessary spending, the two pressed China to face up to its problem of making investment with low or no efficiency.

Their calculations - one of the starkest to date - showed that unproductive investment took up almost half of China's total investment in 2009 and 2013.

The remarks were made by Xu Ce of the development and planning department at China's top economic planner, the National Development and Reform Commission, and Wang Yuan from the Academy of Macro Economic Research, which is linked to the commission.

Their comments were published in an opinion piece in the Shanghai Securities News on Thursday, with the caveat that their views did not reflect official thinking.

"The problem of low- or no-efficiency investment has reached a time where it must be faced up to," Xu and Wang wrote.

China has acknowledged that it is overly-dependent on investment to power the world's second-biggest economy, but re-ordering the growth model takes time. Investment contributed to 42 percent of China's economic growth between January and September this year.

Xu and Wang said the problem should be addressed now as China seeks to develop regional economies, including those along the old Silk Road trading route where it has promised to spend $40 billion.

Exhorting caution, Xu and Wang said China wasted between 4.7 trillion yuan and 13.2 trillion yuan each year between 2009 and 2013 on investment with zero efficiency.

The money wasted on such projects peaked in 2013 at 13.2 trillion yuan, or 47 percent of China's total fixed capital formation for that year, their calculations showed.

Investment quality had fallen so much recently that nearly two-thirds of the 67 trillion yuan that China wasted from 1997 were spent after 2008.

Easy liquidity conditions worldwide, state campaigns to revitalise some sectors that led to over-investment, delays in the restructuring of some firms and judging government performances by the level of economic growth all fed wastage, they said. (1 US dollar = 6.1242 Chinese yuan) (Reporting by Koh Gui Qing; Editing by Kim Coghill)
China wasted $6.9 trillion on bad investment post 2009
 

Sylex21

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Seems like a drop in the bucket for them..
Their entire GDP is about $8 Trillion. Not sure why you'd say that unless you read the part about TRILLION wrong.

I wish the article elaborated on what they consider "ineffective investment", and what percentage of "ineffective investment" is normal for other nations, to provide some sort of perspective.
 

Srinivas_K

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They wasted 6.9 trillion in four years and added some percentage to GDP as a result of growth from this investment.
 

Nicky G

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Investments can certainly shore up GDP during the years of investment but if it fails to generate economic activity in the subsequent years, it becomes a problem. Worse still, the only way to keep the GDP growth rate up is to cover up for the non-performing investments by making even more investments, which the Chinese might be making as we speak. Bad investments can start vicious cycles.

Seems like a drop in the bucket for them..
Unless I am much mistaken 6.9 trillion over four yeas would be 75% of their annual budget. Hardly something to scoff at.
 
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Much of the backing for the banks in china is us bonds and treasury notes which pay
No interest and have no willing buyers on the international market.
 

Otm Shank2

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Unless I am much mistaken 6.9 trillion over four yeas would be 75% of their annual budget. Hardly something to scoff at.
China is an economic superpower they grow at four indian gdps every forthnight and an american gdp every christmas. This was chump change to them
 

no smoking

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So, China is going to collapse again?
Wait, did i just say "again"?
 

mattster

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The number seems excessive and maybe exagerated.

I am sure that if you look at all the state-level corruption, inefficiency, bloated and waste in India = probably over couple of hundred billion as well over a 10 year priod
 

Nicky G

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China is an economic superpower they grow at four indian gdps every forthnight and an american gdp every christmas. This was chump change to them
I am not sure I even understand what's written here.

So, China is going to collapse again?
Wait, did i just say "again"?
I don't believe that's stated anywhere or even implied.

The point is wasteful economic activity adds to GDP and since it does not generate any positive activity in subsequent years, the government would need to do more investments only to keep the growth rate up.

The waste ended up making few Billionaires who have stashed their loot overseas.
Certainly.
 

no smoking

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I don't believe that's stated anywhere or even implied.
If any country did waist half of its GDP in 4 years, I think "Collapse" is the only direction it is going.

The point is wasteful economic activity adds to GDP and since it does not generate any positive activity in subsequent years, the government would need to do more investments only to keep the growth rate up.
In last 30 years, most of China's infrastructure projects wouldn't generate much positive activity in first several years.
 

badguy2000

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after wasting 6.8trillion USD, china' GDP has succeeded in rising from 1 trillon USD(2000) to 10 trillion USD(2014). According to the wonderful analyse,China is to waste another 68 trillion USD,so that china's GDP can rise from 10trillion USD(2014) to 100 trillion USD(2024).
 

Nicky G

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If any country did waist half of its GDP in 4 years, I think "Collapse" is the only direction it is going.
Not really, governments are usually good at accounting gymnastics to cover over the facts they don't wish to get out.

For an undemocratic government, it would only be much easier to do so.

In last 30 years, most of China's infrastructure projects wouldn't generate much positive activity in first several years.
It would be really helpful if you could back that statement up. As in precise investments that were NPA for several years before suddenly starting to generate profit. More significantly how much were these investments worth as a percentage of the GDP.

after wasting 6.8trillion USD, china' GDP has succeeded in rising from 1 trillon USD(2000) to 10 trillion USD(2014). According to the wonderful analyse,China is to waste another 68 trillion USD,so that china's GDP can rise from 10trillion USD(2014) to 100 trillion USD(2024).
Sure go right ahead, waste as much money in NPA as you wish.
 

LalTopi

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This was not by accident or corruption but by conscious choice. China was heavily export dependent for growth, but with the severe recession in their Western export markets, the Chinese Central authorities faced a stark choice, either to go into recession themselves and face civil discontent, or to 'create' money and pump it into the economy. They chose the latter route and also slightly masking the money creation by managing it through the shadow economy, I.e. local authorities rather than their banks. Result, they avoided recession and maintained growth, but with a lot of investment in useless or inefficient assets. Whether this was a good move or bad move remains to be soon, as China still has plenty of dollar reserves to keep itself solvent. But yes, it's a given that growth will slow substantially over the coming years, and indeed the central authorities are trying to manage a graceful transition towards this target. Trouble with graceful slowdowns is that it might all blowup in your face.
 

Nicky G

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This was not by accident or corruption but by conscious choice. China was heavily export dependent for growth, but with the severe recession in their Western export markets, the Chinese Central authorities faced a stark choice, either to go into recession themselves and face civil discontent, or to 'create' money and pump it into the economy. They chose the latter route and also slightly masking the money creation by managing it through the shadow economy, I.e. local authorities rather than their banks. Result, they avoided recession and maintained growth, but with a lot of investment in useless or inefficient assets. Whether this was a good move or bad move remains to be soon, as China still has plenty of dollar reserves to keep itself solvent. But yes, it's a given that growth will slow substantially over the coming years, and indeed the central authorities are trying to manage a graceful transition towards this target. Trouble with graceful slowdowns is that it might all blowup in your face.
I'd agree. This was basically their version of printing their way our of trouble as the US did. However as I pointed out, merely to prevent a severe drop in the growth rate, they would need to continuously invest more and more in assets that are likely never going to generate revenue, just as the US had to keep printing billions.

Sure, they have a lot of money. Their forex reserve is twice our GDP, but their mal-investments would seem to be even bigger. Though, I'd agree their is noting catastrophic that's likely to happen anytime soon, we'll only see significant slow down.

The interesting part would be how civil unrest picks up with a slowing economy. The Chinese have enjoyed the good-side of being dictatorial, maybe its time they face the down-side.
 

LalTopi

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after wasting 6.8trillion USD, china' GDP has succeeded in rising from 1 trillon USD(2000) to 10 trillion USD(2014). According to the wonderful analyse,China is to waste another 68 trillion USD,so that china's GDP can rise from 10trillion USD(2014) to 100 trillion USD(2024).
Off topic but who is that guy in your picture. looks like Xi Jinping. certainly goes around flexing his muscles.
 

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