In a recent post, we highlighted a chart from Crescat Capital’s second quarter letter to investors showing China’s unsustainable corporate debt growth. Today, we bring you another jaw dropping chart from the same letter that shows the enormous and unsustainable growth in Chinese fixed capital investment since 2000.
Fixed capital investment is spending on physical assets such as infrastructure, buildings, property, machinery, or technology. While a certain amount of fixed capital investment is unquestionably good for any economy, fixed capital investment in China has reached completely unsustainable levels. It is largely responsible for the surging corporate indebtedness problem in China that we discussed in the previous post. It is also this excessive fixed capital spending, which is creating the illusion of rapid economic growth and high employment in China.
As Crescat Capital notes: