China’s Economic Crisis: Part 2, The Colossal Boom (1990 – 2014)

Posted May 15, 2016

Chinese Investment increased 50-fold between 1990 and 2014. Investment (i.e. Gross Fixed Capital Formation or GFCF) in China grew from US$92 billion in 1990 to US$4.6 trillion in 2014. During the last 25 years in China:

• The Gross Output Value of Construction increased by 134 times, growing at an average annual rate of 21%.

• Building Area Under Construction increased by 33 times, at an average annual rate of 15%.

• Steel Production increased by 12 times, at an average rate of 11% growth per year. Consequently, China now has 50% of global steel capacity.

• Cement Production increased 12-fold, growing by an average annual rate of 11%. During just three years (2011 to 2013), China produced more cement than the United States did during the entire 20th Century.  China now has 59% of global cement capacity.

To put China’s investment boom in better perspective, let’s compare it with the level of investment in the world’s largest economy, the United States.   Between 2000 and 2014, Investment (GFCF) in the United States amounted to US$976 billion, while Investment in China came to US$4,216 billion – 4.3 times more.

In 2014, Investment in the US made up 18% of US GDP. In China, it accounted for an extraordinary 44% of GDP – a level of Investment to GDP probably not witnessed since the Pharaohs built the pyramids with slave labor four thousand years ago.

In the last Macro Watch video, we saw how China accumulated a US$4 trillion surplus on its Current and Financial Accounts between 1982 and 2014.   In the new Macro Watch video, uploaded today, we will see how the investment of that money created the greatest economic boom in history.

We also find, however, that China’s colossal boom came to an end in 2015. Trees don’t grow to the sky.

Last week, we were told by an “authoritative figure” quoted in The People’s Daily, that China would experience “an L-Shaped Recovery”. It is worth keeping in mind that Japan has been in an L-Shaped Recovery now for 26 years.

Next time, in the third video of the China Crisis Series, we will consider the two constraints to economic growth that China will not be able to overcome. Those constraints are likely to keep China trapped in a severe economic slump far into the future.

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