I’ve lost track of how many years we’re into the story of “debt-burdened China and its unsustainable investment-fueled growth are about to crash and burn” but this morning came the news of a rebound in economic growth despite a fall in exports after a couple of down quarters. Naturally the news article is nonetheless filled with gloom and doom about bad debts and overinvestment and blah blah blah.
And to be clear, I think that two things are true. One is that as China gets richer and richer its growth rate is going to be on a downward trajectory. The other is that if you predict a Chinese financial crisis every month for enough straight months, eventually the Chinese financial crisis will occur.
But it’s very hard for me to think of another story where the ratio of pessimistic commentary to actual bad news has been so high. You particularly see this in the odd obsession with overinvestment. In normal countries, high levels of investment are always considered to be a good sign for the future. It builds wealth for tomorrow! Now it really does seem to be the case that China’s investment level is so extraordinarily high that many of the investments being undertaken have low long-term value. But the question must be asked: Compared to what? A dollar invested in a very bad project is still going to have more long-term wealth-building impact than a dollar spent on Chicken McNuggets. And by the same token, resources employed in a white elephant infrastructure project are generating drastically more social value than resources employed in Southern Europe’s booming unemployment sector.