Long-term investment success, with trouble in the short term

In a column last week, Monitor argued that the mainland's investment boom is not as wasteful as Beijing's detractors believe.

The point is important, because people who believe the mainland economy is heading for a crash landing usually cite massive misallocation of capital to unproductive investment projects as the most likely cause of the impending crack-up.

They argue that the proof of this misallocation is to be seen all over the mainland in the form of empty airports, highways to the middle of the Gobi desert and entire ghost cities devoid of inhabitants.

Unconvinced by the anecdotal evidence, Monitor crunched the numbers and found that the amount of capital Beijing invests to produce each extra yuan of economic output has actually been pretty steady over the past 15 years (see the first chart). Despite the scare stories, Monitor concluded, 'the economic efficiency of China's investments is not deteriorating as the pessimists believe'.

Readers were sceptical. Some doubted the reliability of the original data, which is always a reasonable complaint in China. Some questioned the value of Monitor's investment-in growth-out indicator, or argued that the time periods chosen were too short to be valid.

Many gave examples from their own experience. 'Any old hand can tell you,' wrote one senior business executive, 'how much wastage there is in China'.