For the first time in at least a decade, the Chinese economy can now produce the same level of output with less capital than the previous year. However, as China is still being pulled by competing needs – economic growth, financial deleveraging and reform, and social stability – but efficiency might again end up on the back burner, said Michael Taylor, chief credit officer of Moody’s Investors Service. “Earlier this year, it looks to us that out of those three (competing needs), the reform and re-balancing side is less important, and the emphasis is on growth and on stability,” Taylor said in a recent interview with Caixin on the sidelines of the 8th Caixin Summit. A more efficient economy is often expressed in a lower incremental capital-output ratio. In 2016, the ratio in China hit a near-term peak of 6.5, meaning $6.5 worth of capital investment was needed to generate $1 of extra production.
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