Breaking China’s Investment Addiction

Faced with sluggish external demand and weak domestic consumption, China depends on investment to drive economic growth – leading to overproduction, inflation, soaring real-estate prices, and rising debt among enterprises and local governments. To reach the next stage of development, China must break its reliance on investment.

BEIJING – China’s economic growth model is running out of steam. According to the World Bank, in the 30 years after Deng Xiaoping initiated economic reform, investment accounted for 6-8 percentage points of the country’s 9.8% average annual economic growth rate, while improved productivity contributed only 2-4 percentage points. Faced with sluggish external demand, weak domestic consumption, rising labor costs, and low productivity, China depends excessively on investment to drive economic growth.