Tuesday, September 8, 2009

Why is Investment so High in China ?

By John Knight, and Sai Ding

China has had a remarkably high ratio of investment to output throughout the period of economic reform, surpassing almost all other economies, whether developed or developing. The high investment rate is in turn an important proximate determinant of China’s high rate of economic growth. This survey paper gathers together the available evidence to explain why investment is so high. It considers factors both on the demand and on the supply side, and in the latter case the availability both of resources and of funds. It analyses the rate of return on capital and its movement over time, and the factors which have kept it up. It draws on the literature to explain the high saving rate, and considers why the imperfect capital market and institutional deficiencies have not constrained investment. The state-owned and the private sectors are treated separately on account of their different objectives and behaviour and their differential access to funds.

Keywords: China, Financial market, Credit constraint, Investment, Rate of profit, Saving

URL: http://d.repec.org/n?u=RePEc:oxf:wpaper:441&r=dev