What’s Driving Investment in China?
Investment has grown rapidly in China in recent years, reaching more than 40 percent of GDP. Despite good progress on bank and enterprise reforms, weaknesses remain that could contribute to inefficient investment decisions. Manufacturing, infrastructure, and real estate have been the drivers of fixed asset investment. Econometric analysis presented in the paper suggests that manufacturing investment is strongly correlated with firms' liquidity, largely retained earnings. Analysis of residential real estate investment shows that it is weakly correlated with real household income growth and real mortgage interest rates. A policy implication of these findings is that reducing liquidity in firms, for example by requiring state-owned enterprises to pay dividends to the government, and using monetary policy to reduce liquidity increase real interest rates, would slow investment in manufacturing and real estate.
|Date of creation:||01 Nov 2006|
|Contact details of provider:|| Postal: International Monetary Fund, Washington, DC USA|
Phone: (202) 623-7000
Fax: (202) 623-4661
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC
|Order Information:||Web: http://www.imf.org/external/pubs/pubs/ord_info.htm|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sean Dougherty & Richard Herd, 2005. "Fast-Falling Barriers and Growing Concentration: The Emergence of a Private Economy in China," OECD Economics Department Working Papers 471, OECD Publishing.
- Eswar Prasad & Shang-Jin Wei, 2007.
"The Chinese Approach to Capital Inflows: Patterns and Possible Explanations,"
NBER Chapters,in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 421-480
National Bureau of Economic Research, Inc.
- Shang-Jin Wei & Eswar S Prasad, 2005. "The Chinese Approach to Capital Inflows; Patterns and Possible Explanations," IMF Working Papers 05/79, International Monetary Fund.
- Eswar Prasad & Shang-Jin Wei, 2005. "The Chinese Approach to Capital Inflows: Patterns and Possible Explanations," NBER Working Papers 11306, National Bureau of Economic Research, Inc.
- Liu Hongyu & Yun W. Park & Zheng Siqi, 2002. "The Interaction between Housing Investment and Economic Growth in China," International Real Estate Review, Asian Real Estate Society, vol. 5(1), pages 40-60.
- Wensheng Peng & Matthew Yiu & Dickson Tam, 2005. "The Property Market and the Macroeconomy of the Mainland: A Cross Region Study," Working Papers 0512, Hong Kong Monetary Authority.
- Kuijs, Louis, 2005. "Investment and saving in China," Policy Research Working Paper Series 3633, The World Bank.
- Shang-Jin Wei & Genevieve Boyreau-Debray, 2004. "Can China Grow Faster? A Diagnosis of the Fragmentation of Its Domestic Capital Market," IMF Working Papers 04/76, International Monetary Fund. Full references (including those not matched with items on IDEAS)