The Danger of Overcapacity

While the US frittered away much of the stimulus on throwing money at banks, the Chinese actually created much more capacity. Business Week used to do a good job of understanding real issues. Here the new Bloomberg magazine notes that the extra capacity poses a risk to the West because China will now have to export more, creating a different sort of imbalance.

Roberts, Dexter. 2009. "China's 'Made in China' Problem: The Downside to Beijing's Huge Stimulus is a Glut of Factories and Output That May Spur Trade Frictions." Business Week (21 December): pp. 20-21.

While Beijing's $586 billion stimulus package has helped the mainland navigate the global financial crisis, there's a downside. Fixed asset investment -- money spent on factories, highways, and other big-ticket projects -- soared 40% in the first half and accounted for nearly all of the country's growth.