China’s ICOR Near‑9, Questioning 5% Growth Target
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- China announced a 5% GDP growth target for 2025, using it as evidence of economic resilience.
- China’s National Bureau of Statistics supplies the data used to compute ICOR, defined as gross capital formation as a percentage of GDP divided by real GDP growth, measuring investment efficiency.
- China’s ICOR climbed from about 3.9 (2000‑2007) to 7.2 (2008‑2019) and now averages roughly 8.5 annually, approaching 9 on a five‑year rolling basis.
- Rhodium Group estimates China’s 2025 growth at 2.5‑3%, implying an ICOR of 14‑17 under those assumptions.
- China’s state‑owned enterprises, local government financing vehicles, and politically connected developers borrow at low rates and fund projects lacking commercial returns, creating excess capacity.
- United States can apply pressure by forming a multilateral framework with allies to curb subsidized Chinese overproduction, rather than relying solely on unilateral tariffs.
- Daniel Swift, senior research analyst at the Center on Economic and Financial Power, says China can mask losses and manage deterioration, but remains dependent on credit expansion and export revenues.
Why it matters: China’s soaring ICOR shows its 5% growth target is underpinned by wasteful investment, eroding economic leverage. The United States and its allies can gain from a coordinated multilateral effort that curbs subsidized Chinese exports, while China bears the cost of its overcapacity model.
