As China shifts from being the world’s workshop to its main financier, only the US has the capacity to absorb China's savings. The resulting imbalances should be welcomed as a spur to global growth – just as they have been in the past.
SINGAPORE – In recent weeks, there has been a chorus of opinion arguing for a sharp increase in global investment, particularly in infrastructure. Former US Treasury Secretary Lawrence Summers asserted that public investment really is a free lunch, while IMF Managing Director Christine Lagarde has argued that an investment boost is needed if the world economy is to “overcome a new mediocre.”
These comments suggest that the world has been under-investing for many years. In fact, according to International Monetary Fund data, the current overall global investment rate, at 24.5% of world GDP, is near the top of its long-term range. The issue is not a lack of overall investment, but the fact that a disproportionate share of it comes from China.
China’s share of world investment has soared from 4.3% in 1995 to an estimated 25.8% this year. By contrast, the United States’ share, which peaked at 36% in 1985, has fallen to less than 18%. The decline in Japan’s share has been more dramatic, from a peak of 22% in 1993 to just 5.7% in 2013.
SINGAPORE – In recent weeks, there has been a chorus of opinion arguing for a sharp increase in global investment, particularly in infrastructure. Former US Treasury Secretary Lawrence Summers asserted that public investment really is a free lunch, while IMF Managing Director Christine Lagarde has argued that an investment boost is needed if the world economy is to “overcome a new mediocre.”
These comments suggest that the world has been under-investing for many years. In fact, according to International Monetary Fund data, the current overall global investment rate, at 24.5% of world GDP, is near the top of its long-term range. The issue is not a lack of overall investment, but the fact that a disproportionate share of it comes from China.
China’s share of world investment has soared from 4.3% in 1995 to an estimated 25.8% this year. By contrast, the United States’ share, which peaked at 36% in 1985, has fallen to less than 18%. The decline in Japan’s share has been more dramatic, from a peak of 22% in 1993 to just 5.7% in 2013.