Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/199002 
Year of Publication: 
2019
Series/Report no.: 
CESifo Working Paper No. 7642
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
For a long time, China’s impressive growth performance has been driven by investment and high productivity gains. Based on the recent discussion on possible overcapacities and overinvestment in China, the paper investigates the sustainability of China’s investment- and export-driven growth model. It is shown that since the turn of the millennium buoyant capital inflows and low interest rates have been at the roots of overinvestment and misallocation of capital, which necessitated export subsidies to clear markets. The overinvestment boom is argued to have ended around 2014. Since then, the overcapacities have weakened China’s bargaining position in the US-Chinese trade conflict and have tempted the Chinese authorities to postpone a restructuring of the Chinese economy by low-interest credit provision. The resulting gradual reemergence of quasi soft budget constraints is seen to undermine China’s long-term growth potential.
Subjects: 
China
investment
overinvestment
trade policy
credit growth
rebalancing
soft budget constraints
zombification
JEL: 
E22
E43
E58
F13
Document Type: 
Working Paper
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