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Chinese Subsidies Create Unprofitable Overcapacity and Risk of Crisis



(p. 5) . . . subsidies, . . . , have spurred excess capacity and created a dangerous political dynamic in which these investments have to be propped up at all cost.

China has been building factories and production capacity in virtually every sector of its economy, but it's not clear that the latest round of investments will be profitable anytime soon. Automobiles, steel, semiconductors, cement, aluminum and real estate all show signs of too much capacity. In Shanghai, the central business district appears to have high vacancy rates, yet building continues.


. . .


Over all, there is a lack of transparency. China's statistics on its gross domestic product are based more on recorded production activity than on what is actually sold. Chinese fiscal and credit policies are geared toward jobs and political stability, and thus the authorities shy away from revealing which projects are most troubled or should be canceled.

Put all of this together and there is a very real possibility of trouble.



For the full commentary, see:

TYLER COWEN. "Economic View; Dangers of an Overheated China." The New York Times, SundayBusiness Section (Sun., November 29, 2009 ): 5.

(Note: the online version of the commentary has the date November 28, 2009.)

(Note: ellipsis added.)





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