China’s Bad Growth Bet by Nouriel Roubini

Introduction

China’s bad growth bet is an article that was written by Nouriel Roubini on a topic that has continued to attract a lot of attention. The topic on China’s growth can be termed controversial because different people have come up with their own opinion on the country’s economic prospects, growth and direction.

The author argues that the country will come into economic problems by 2013 which is a fallacy based on the realities on the ground (Roubini, 2011, p. 3). As much as there is a lot of duplication of infrastructure projects, it does not imply that the country is overbuilding as the author has asserted.

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The authors’ conclusions are not supported by facts to explain why the country will have economic problems. There is an argument that cargo traffic is decreasing yet this is to the contrary where traffic grew by 27% (Wong, 2010, p. 24).

Discussion

Like many analysts, Roubini is very skeptical about the country’s economy based on debt and overcapacity. I do not agree with this because he has failed to look at basic and important facts like income and demographics.

The country’s investment in infrastructure should be praised because it has created employment and spurred up spending in the economy which is positive. The author is arguing that the country has reinvested 50% of its GDP thereby creating overcapacity and non performing loans which will lead to a bad landing (Roubini, 2011, p. 6).

This is not true because such projects have enhanced and improved business efficiency in an economy that is still developing like China. As a matter of fact, Roubini argues that these investments will create inflation as time goes by.

China will certainly go through economic cycles and the author should not expect things to move smoothly. There is no proven fact that the country’s inflation is as a result of overinvestment in infrastructure but rather from a declining labor force and its education system (Wong, 2010, p. 54).

There are no valid arguments because the author has based his data on a trip that he made in the country when it was launching its five year plan. As much as some of the country’s policies are flawed as far as income distribution is concerned, this has not been well proven because the country has a lot of its population in the middle income group.

There might be some overinvestments in areas like trains but this is expected of an economy that is planning for its population for the next 50 years. The degree of approximation in relation to saving 30% of disposable income is ultimately flawed because this keeps on varying in the country that has a large population.

Conclusion

China is not in any economic danger from investments in infrastructure as the author suggests but rather the danger will come from a US bust. 350 million people or households can now afford automobiles and this explains why the country has been sensitive enough to invest in infrastructure projects (Wong, 2010, p. 15).

Such initiatives are acceptable because they are responding to the needs of the population but the author sees this as a problem. China’s explosive growth has certainly left many people guessing on the direction that it will take but I think the author was not credible enough with his predictions.

Basic trends on investment in the country speak otherwise because the country is doing well as far as exports are concerned which should cushion the economy for long term sustainability.

Reference list

Roubini, N. (2011). China’s Bad Growth Bet. Retrieved July, 22, 2011, from
http://www.project-syndicate.org/commentary/roubini37/English

Wong, E. (2010). China’s Export Economy Begins Turning Inward. New York: The New York Times.