China has over-invested in itself: IMF official; The government has extracted money from the population to help pay the huge cost of maintaining its rapid growth

April 17, 2013 Leave a comment

China has over-invested in itself: IMF official

Staff Reporter, 2013-04-17

China has over-invested its resources domestically, according to a report by Li Yiheng, chief representative of the International Monetary Fund in the country.

Domestic investment has accounted for about 50% of China’s GDP, which is far higher than the 12%-20% average found around the globe, said the report. The situation is primarily due to large investments by the government to try to overcome the negative effect of the global financial crisis during the period 2007-2011.

Though the over-investment will not immediately cause a crisis, the government should keep an eye on the possible negative effects, said Li, adding that loans made for the purpose of investment projects will become a burden on the nation’s population.

The country’s outstanding economic growth was the result of long-term large-scale investment over the past 20 years, said Li. The government has extracted money from the population to help pay the huge cost of maintaining its rapid growth and has only recently tried to slow down investments and promote local consumption, said Li.In addition, loans made for the government plans has accounted for 4% of the country’s GDP which will be transferred directly to the country’s population. Small and medium companies will have to pay higher costs to secure capital due to the priority previously given to large companies, said Li.

Li also said the increase of pension costs and the decrease in the supply of labor will become a burden on the central government’s ability to collect tax revenue.

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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