>Investment is now running into sharply diminishing returns
This can be seen quite clearly in the rising ICOR [1] numbers. The stimulus lead investment since the crisis has been substantially less productive, at least in the short term [2]. Infrastructure and real-estate investment is doing much less for future GDP growth than prior investments in capital equipment for manufacturing, exports etc.
The bigger concern in the financing of this investment binge. IMO there is a very real risk of substantial civil unrest in China when the massive credit bubble comes apart.
The FT put out a much more extensive treatment of these issues a couple of days ago:
This can be seen quite clearly in the rising ICOR [1] numbers. The stimulus lead investment since the crisis has been substantially less productive, at least in the short term [2]. Infrastructure and real-estate investment is doing much less for future GDP growth than prior investments in capital equipment for manufacturing, exports etc.
The bigger concern in the financing of this investment binge. IMO there is a very real risk of substantial civil unrest in China when the massive credit bubble comes apart.
The FT put out a much more extensive treatment of these issues a couple of days ago:
http://ftalphaville.ft.com/2013/07/17/1554582/when-does-a-ch...
[1] http://en.wikipedia.org/wiki/Incremental_Capital-Output_Rati...
[2] http://www.zerohedge.com/sites/default/files/images/user3303...