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Recently released official 2016 data from China place private investment growth at 3.2 percent compared to 18.7 percent for state investment growth. However, when properly defined to include both registered private companies and limited liability companies that are privately controlled, private investment rose by an estimated 8 percent last year (table 1).[1] While 8 percent is more robust than the official number, it nonetheless represents a sharp deceleration relative to the pace of growth of state investment, which almost doubled in 2016.
| Table 1 Investment in 2015 and 2016, billions of yuan | |||
| 2015 | 2016 | growth rate (percent) |
|
|---|---|---|---|
| total | 55,159 | 59,650 | 8 |
| foreign | 2,268 | 2,616 | 15 |
| state | 17,893 | 21,310 | 19 |
| private | 27,903 | 30,159 | 8 |
| collective and other | 7,095 | 5,565 | -22 |
| Note: foreign investment includes investment from Hong Kong, Macao and Taiwan. | |||
| Sources: National Bureau of Statistics of China and authors’ estimates. | |||
Private investment prior to 2011 was growing well over twice the pace of state investment, pushing up the private share of total investment (figure 1). Starting in 2011 the relative pace of private investment growth slowed, so the share of private investment continued to rise, though more slowly.
In 2016 the pace of growth of private investment slowed dramatically to less than half the pace of state investment, so the share of private investment did not increase for the first time in over a decade. Regardless of the precise cause, a continuation of this trend likely is adverse for China’s growth since the return on assets of private firms is a several-fold multiple of state firms.
Note
[1] A previous post similarly argues that private investment slowed in the first half of 2016, but not to a pace as low as the officially reported 2.8 percent. The 3.2 percent figure for 2016 reported by China’s statistical authorities is actually for a category called minjian, which the authorities translate as private. But minjian is a broader concept that includes not only private but also collective, cooperative, and a residual of “other.” In 2016 collective investment and “other” investment both fell sharply, with the result that the growth of minjian understates the growth of private investment.
