One of dozens of Chinese "Ghost Cities" empty of inhabitants...
Posted on 12/04/2011 2:31:20 AM PST by TigerLikesRooster
MICHAEL PETTIS: Here's How You Know China Is Overinvesting
Michael Pettis, China Financial Markets | Dec. 3, 2011, 10:26 AM | 4,011 | 7
Michael Pettis
For years I have been arguing that the Achilles heel of the Chinese growth model is the unsustainable rise in debt that comes as a necessary consequence of capital misallocation fueled by bank lending. Capital misallocation, I argued, was the nearly inevitable consequence of high investment growth over many years in a system in which price signals are severely distorted and there is political incentive to maximize economic activity in the near term. If capital misallocation is funded by debt, the increase in debt is necessarily unsustainable.
/snip
1) Whether the total economic costs of investment are less than the total economic benefits, and
2) Whether there is a mismatch in the timing of costs and benefits.
The first point determines whether the investment is ever wealth enhancing, and the second determines whether or not in the medium term there is a worsening of the underlying imbalance. This means that in discussing whether or not capital is being misallocated it is not enough to assert that electric cars will one day be an important technology
Electric cars?
My problem with Chinese investment in the electric car industry had nothing to do with my superior knowledge of the prospects for the industry (I have none). It had mostly to do with my basic instinct that risky high-technology ventures are not best funded and directed by companies, industries and policymakers who are historically weak in the technology sector, especially when they have no shareholder or budget constraints and have almost unlimited access to heavily-subsidized capital. This seemed to me a recipe for wasted investment.
(Excerpt) Read more at businessinsider.com ...
A cogent argument
P!
A cogent argument
Begging your pardon, but it is not a cogent argument, but a damnable, bald-faced LIE.
It may, however, be trivially corrected as follows:
This seemed to me a recipe for wasted investment wholesale theft.
See also the entire Green Movement and most of the Chicago machine infesting the White House.
Cheers!
I think he is not aware of the the technology coming from Japan and being cross pollinated with the Chinese efforts. The two are developing new technology that is not present here.
The Japanese academics developed an electric car that in a drag race defeated the best gas engine and Toyota and Porsche had to bring to the contest. These people collaborated with Chinese and we don’t know what will ultimately develop.
To rant about misallocation of capital for an electric car in a populous nation with crowded polluted cities seems to me to be academic nonsense
The first point determines whether the investment is ever wealth enhancing, and the second determines whether or not in the medium term there is a worsening of the underlying imbalance.
A very fast car but also very very expensive (in short a money-wasting toy).
-——in short a money-wasting toy-——
It is difficult to separate objects of men’s passions from their toys.
In the case of the auto in question it was developed from scratch by a group of engineers of different disciplines. None was a car guy. They developed the various electric motors that drove the 8 wheels, the electronics, the mechanics and the all new and different batteries and every thing else.
While it was a toy of sorts, it was actually pure research into the design of everything new. Spending money on R&D is always a crap shoot. It may or may not pan out. They were driven to use their engineering and manufacturing talents to create something completely new
They went to China to discuss the new battery technology being developed there but did not reach agreement. The point is that there are similar minded fol;ks in China conducting new and sophisticated research
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