Overly invested in a Chinese fantasy

Conventional wisdom says China has near-infinite scope for growth-promoting investment. In reality, it seems the country has long ago passed the point where investment in the aggregate is wealth creating.

I have been arguing for several years that once China begins the adjustment process, which I expect to characterize the ten-year period of the current administration, growth rates must slow significantly. My expectation for long-term growth is that it shouldn’t average much above 3-4 per cent annually. This is what it will take for household consumption to rise to roughly 50 per cent of GDP in a decade if consumption growth can be maintained at its historic rates of around 8 per cent.

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