Second, if China is overinvesting so much, why aren profits falling?
The investment data give rise to a similar conundrum: a sharply rising investment ratio combined with declining consumption should lead to weak and falling corporate profits, but official industrial data for the past five years show strong profitability. Industrial margins have declined somewhat since 2004, particularly in excess capacity sectors, but they remain very high by Chinese historical standards. Third, if consumer savings are exploding, why can’t we find them? By far the most telling critique of the consensus view comes from the savings side of the equation. After all, actual consumption may be higher and investment lower than the official GDP numbers suggest—but the dramatic rise in the current account surplus over the past few years still implies a dramatic rise in savings, and any consistent exposition of Chinese imbalances must explain where those savings are coming from. As best we can tell, they are not coming from households. Banking system data show that the household
