DESPITE falling exports, China's economic growth has remained relatively strong this year thanks to a surge in investment sparked by the government’s stimulus measures. Official data show that fixed-asset investment leapt by an astonishing 39% in the year to May, or by a record 49% in real terms. Sowing more today should yield a bigger harvest tomorrow, but how wisely is this capital being used?
Official figures almost certainly overstate the size of the spending boom: local bureaucrats may well be exaggerating investment in order to impress their masters in Beijing. More important, the government's figures misleadingly include land purchases and mergers and acquisitions. But even if measured on a national-accounts basis, like GDP, investment is probably growing at a still-impressive real annual rate of around 20%. This year China's domestic investment in dollar terms is likely to exceed that in America (see chart).
There is widespread concern that this investment boom is adding to China's excess capacity.
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