Era of peak waste coming to a close

Time-worn lesson for the history books: trillions in ‘free’ money (courtesy of debt) is a recipe for epic waste and mal-investment. A new Chinese study confirms our assessment of what has been going on in China and the global economy for the past several years. It also helps explain why commodity prices are now mean reverting, and global growth is slumping amid staggering debt and stockpiles of everything. See: China has ‘wasted’ 6.8 trillion in investment, warns Bejing researchers.

It’s long past time to take the keys off ‘add debt and stir’ central planners. They are dangerous to say the least.

“Ghost cities” lined with empty apartment blocks, abandoned highways and mothballed steel mills sprawl across China’s landscape – the outcome of government stimulus measures and hyperactive construction that have generated $6.8 trillion in wasted investment since 2009, according to a report by government researchers.

In 2009 and 2013 alone, “ineffective investment” came to nearly half the total invested in the Chinese economy in those years, according to research by Xu Ce of the National Development and Reform Commission, the state planning agency, and Wang Yuan from the Academy of Macroeconomic Research, a former arm of the NDRC.

China is this year on track to grow at its slowest annual pace since 1990, and the report highlights growing concern in the Chinese leadership about the potential economic and social consequences if wasteful investment leaves projects abandoned and bad loans overloading the financial system.”

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