Stock Markets, FDI and Challenges of Sustainability
Advances in Chinese Economic Studies series
Edited by Lilai Xu
Chapter 12: Has Capital been Utilized Efficiently in China?
Yanrui Wu INTRODUCTION Although less developed economies are often hampered by the shortage of funds during the course of their economic development, China seems to be an exception. Within three decades, China has accumulated the largest foreign reserve in the world, and undertaken many ambitious capitalintensive projects such as the Three Gorges Dam (with a cost of about US$200 billion), the Hangzhou Bay Bridge (about 36 kilometres across the ocean), the extravagant Beijing Olympic Games and the massive fiscal stimulus package of four trillion yuan (around US$586 billion) announced in November 2008. The appearance of many new highways and buildings across the nation gives the impression that the country is flooded with money. This is also reflected in China’s statistics as the country has for years been the largest recipient of foreign direct investment and maintained one of the highest saving ratios in the world. As a result, it has been questioned whether money has been used efficiently in China. An investigation of China’s investment efficiency is timely as the country’s policy makers are charting the course of economic development in the coming decades. There are numerous empirical studies of capacity utilization in developing economies such as Korea (Lee and Kwon, 1994), India (Gajanan and Malhotra, 2007) and Bangladesh (Salim, 2008). Some authors have also addressed the efficiency or utilization of the single production factor. Examples include Wu (1998) on labour utilization, Voulgaris et al. (2002) on asset utilization and Green and McIntosh (2007) on the underutilization of...
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