Michael Pettis: China – How Much Investment is Optimal?
If China’s very low level of social capital has long ago made its investment strategy obsolete, that suggests that China has overinvested beyond its capacity to utilize these investments economically. Thus there are hidden losses on bank balance sheets created by the failure to write down physical capital to its true value. In this case Chinese growth cannot help but drop significantly as these losses are finally recognized and as investment levels are sharply curtailed.
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