Benn Steil


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Labor Data Show That China Is a Bubble Waiting to Burst

by Benn Steil and Dinah Walker
December 5, 2012


China “may have” overinvested to the tune of 12-20% of gross domestic product (GDP) between 2007 and 2011 – this is the diplomatically worded conclusion of a working paper released last week by the IMF.  This week’s Geo-Graphic backs it up.

As our figure above shows, the share of the Chinese labor force working in manufacturing and construction, at 38%, is roughly twice the global average – towering well above manufacturing powerhouses like Germany (25%) and South Korea (23%).  Manufacturing’s share of the Chinese work force, at 29%, is also 6 percentage points higher than the level at which other fast growing economies have typically begun slowing.  Once that share exceeds 23%, according to analysis by Barry Eichengreen, it “becomes necessary to shift workers into services, where productivity growth is slower.” Construction’s share of the Chinese labor force, at 9%, is also 2 percentage points higher than in the United States at the peak of the housing bubble in September 2006.  Labor data therefore suggest that China is headed for an extended slowdown in GDP growth.

IMF: Is China Over-Investing and Does It Matter?
Eichengreen, Park, and Shin: When Fast-Growing Economies Slow Down
Orszag: China’s New Leaders Face an Economic Turning Point
Mallaby: Beware Membership of This Elite Club

Post a Comment 3 Comments

  • Posted by pragerz

    This really scares me (as Im from Czech Republic..).

    Not only we are second – we are fourth among EU countries in energy needed for unit of production..

    And what du think our politics are doing? preparing another support (and incentives) for production, even counting with rising electricity consumption (thus they justify our need for another nuclear blocs) – in world with still cheaper sources of renewables X rising prices of nuclear power they are stopping incentives for renewables and preparing these (in form of guaranteed min. price) for nuclear..

    Why are our politics doing it? This is quite clear.. There are (4years and years) rumors (not exactly – these are just unconfirmed facts at least to me..) that CEZ (our energetical giant) has more influence in parliament than voters, probably thanks to hidden financing of our political parties.

    Nice example is president Klaus (finally ends as president) – his wife is exmember of CEZ supervisory board, his son Václav Jr. got CZK 100mil by CEZ for his private school PORG, and his other son Jan Klaus is Chief Risk Officer at ČEZ..

    Naturally more energy consumed is better for CEZ and the more centralized the better (this is the reason why we will support nuclear and not renewables..).

    Naturally they (politics) have huge influence on our media. Thanks to it here is not enough people who would like to stop this addiction to highly energetically difficult production.
    There is not any hunger for renewables (they completely destroyed its name through totally exaggerated incentives in first years and now they play for greed of people still sayin: energy is expensive because of renewables.. – even today when prices are on record low here it is still more and more expensive – not for industry – but for average consumer) and we have to stop all the incentives for renewables (and Im affraid it is what most of our voters want now)..

    As I really believe 2 our politics and president, I could give bonus – short comment to his euroskepticism: He would really like to get rid of any surveillance from EU. This is the only real reason he acts as he does.. Even now – when we are pure recipients of EU-money, there is widely spread euroskepticism (because of negative vision served in long-term by our media, and because huge part of that money ends-up in corrupted projects..) among public, and I really dont want to see it as we will be in position that we should help to another, poorer countries with our money..

  • Posted by Jen PeiWeng

    It is difficult to lead to the conclusion that China’s labour data showing that China is a bubble waiting to burst. It is true that China’s labour share for manufacturing and construction is higher than other economies but it may not lead to a bubble waiting to burst. From the chart, Germany and Japan’s labour shares on manufacturing and construction are at 25% that is much higher than US 15% and UK 16%. There is no prediction saying or sign showing that Germany and Japan are on the verge of bubble bursting due to much higher labour shares than US and UK although their economic structure and economic development phases are similar!

  • Posted by Zhao Peng

    The data may lead to the opposite conclusion: Chinese economy is not likely to “burst”, because we have not so many people working in the “service” sector —- morgage credit, public debt, etc. We are making real things, not conceptual bubbles.

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