China may suffer from excessive investments

Wednesday, 23 March 2005 15:17:35 (GMT+3)   |  
       

China may suffer from excessive investments

China's Communications Ministry announced that the country plans to lay 85'000 km of intercity highways and urban ring roads within 30 years. The ambitious $250 billion project would see China's highway system over take the American Interstate system to become the world's largest sometime around 2020. The new highway investments are expected to change the overall landscape of China as new factories, mines, steel mills and power plants pop up along the new routes. However, according to some Chinese and Western economists, the investments may lead to excessive construction of unneeded factories, highways and power plants. Although last year's 9.5% growth in the country's economy hints at a bright future, China still has a volatile financial system that could collapse quickly if the investments do not bear the desired fruit. Beijing is slowly becoming aware of that fact and is trying therefore to control how investments are funneled into the various projects. The government aims to reduce the economic growth to a degree more conducive to a stable future. Some experts estimate that returns on investments in China have fallen drastically in the last few years. According to those experts, China used to generate 50 cents growth for each dollar invested in fixed assets such as roads, subways, steel mills and the like. However, recently the figure has stunningly dropped to a 20-cent return for each dollar invested.

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