China economy

China’s hard landing began last year, and it’s going to get worse

Video: Richard Duncan explains why he believes the era of China’s investment-led growth ended in 2014

PUBLISHED : Wednesday, 01 June, 2016, 6:01am
UPDATED : Wednesday, 01 June, 2016, 3:23pm

Economist and financial author Richard Duncan believes China’s economy entered into a hard landing in 2015, with the slowdown set to deepen into a slump that will prove to be “severe and protracted”.

At its core, a growth model that relied too heavily on investment and exports has left the economy deeply imbalanced, with few drivers that can now take up the slack.

Duncan has published a series of videos explaining why, in his opinion, China’s economic development model of export-led and investment-driven growth is now in crisis. The South China Morning Post brings you the second video in that series.

“Perhaps not since the Pharaohs built the pyramids with slave labour has investment made up such a large share of a country’s economy and household consumption made up so little,” Duncan said. “This enormous gap between investment and consumption means China’s economy is now wildly unbalanced.”

Underscoring the scale of China’s reliance on investment as an engine of growth, consider how much it has ramped up spending in this area in just a few short years, compared to that of the US, the world’s largest economy. In 2014, investment in the US was US$177 billion higher than 2007, a growth rate of 6%. In 2014, the level of investment in China was US$3.2 trillion more than it was in 2007, representing growth of 236 per cent.

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A former Hong Kong-based banking analyst, Duncan has also worked as an analyst at the World Bank, and as global head of investment strategy at ABN AMRO Asset Management in London. He has authored three books on the global economic crisis, including The Dollar Crisis: Causes, Consequences, Cures. He is now chief economist at the Singapore-based hedge fund Blackhorse Asset Management.

Duncan was also a speaker at last month’s Asian Leadership Forum in Seoul, South Korea. The South China Morning Post was a media partner to the event. He runs the blog Macro Watch, a subscription-based website providing analysis on global economic trends. The remaining videos in the series on China can be found on his research website.

The views expressed in this video are those of Richard Duncan alone and do not represent those of the South China Morning Post. The material in it is for research purposes only and should not be used as a basis for making trading or investment decisions. The South China Morning Post takes no responsibility for any such decisions taken on the basis of this video or any other material provided by Richard Duncan via his videos, blog or any other platform.