MonitorBulls' latest salvo won't ruffle the China bears
Goldman Sachs report takes aim at those who think the Chinese economy is a bubble about to burst – but they won't convince sceptics
In the eternal battle between the China bulls and the China bears, US investment bank Goldman Sachs has just fired a broadside at those who believe the Chinese economy is an enormous bubble just about to burst.
In a research report published on Monday, Goldman's chief Asia economist Michael Buchanan and his colleague Zhang Yin examine widespread worries that China is guilty of massive over-investment.
According to the bears, Chinese state companies and local governments have frittered away trillions of yuan in recent years on wasteful investment projects financed largely by debt.
When the investments fail to pay off, warn the bears, those debts will turn bad, plunging China's financial system into crisis and markedly slowing the economy's rate of growth.
Considering that Goldman as an institution has long been bullish on China, it is no surprise that Buchanan and Zhang find little merit in the bears' argument.
They concede that investment in China is high relative to the size of the economy. At 46 per cent of gross domestic product last year, fixed capital formation is higher in China today than in any other major economy at any point in history. Even at the height of its investment boom in the early 1970s, Japan never exceeded 36 per cent. South Korea only reached 39 per cent.