Inefficient investments continue to be a drain on China’s economy, and debt-laden local governments need to ensure that the projects they back are actually needed in their communities.
That was the message state-owned Economic Daily delivered in a commentary on Sunday, as it put its weight behind national efforts to stimulate domestic demand.
Written under the pen name Jin Guanping, the commentary said the incremental capital output ratio had risen from 2.84 in 2008 to 9.44 in 2023. The ratio is a key measure of investment efficiency where a lower value indicates higher efficiency.
Over the decades, local governments have relied on big construction projects to drive short-term regional growth, often disregarding actual local needs. Many of these projects were poorly planned, resulting in a lot of waste and debt for the governments.
“These projects require enormous investments but yield minimal economic and social benefits,” the commentary said.
“Not only do they drain substantial fiscal resources and squeeze out funding for essential public services, but they also undermine government credibility.”