The Incremental Capital Output Ratio (ICOR) is defined as the percentage of GDP which must be invested to generate one percent GDP growth.
Therefore, the lower the ICOR represents economic expansion, the more efficient investment is in generating growth.
China’s economy has had grown two and a half times as fast as the U.S. and six times as fast as the E.U.
Trends in China’s ICOR
From 1966-76 China’s ICOR rose sharply from 2.0 to 6.5. This was a serious negative development, a more than tripling of ICOR in a 10-year period.
The damaging economic consequences were the political events of this period during the Cultural Revolution.
After 1976 China’s ICOR began to improve reaching 5.1 by 1978 - the beginning of China’s “economic miracle”.
Following the systematic introduction of Reform and Opening Up: China’s ICOR figures was 2.5 by 1988 indicating efficiency of investment.
China’s ICOR then remained very low for two decades, rising only to 3.3 by 2007. Given the increasing level of China’s economic development during this period, the transition from a low-income economy first to a low-middle income economy and then to an upper middle-income economy, this was an extremely good performance.
For a detailed analysis, read John Ross article in the monthlyreview online.
However, from 2007 China’s ICOR rose sharply to reach 7.4 in 2020.
China’s deterioration was also part of a global process occurrence —created by the international financial crisis (IFC 2007).
In fact, China performed better than most major economies. Secondly, China is approaching a “high income country” level by World Bank standards.
Indeed, China’s efficiency of investment in generating growth was ranked second out the world’s 20 largest economies.
This brief note is to repudiate current recalcitrant western attempts to damage China’s economy as analysed in the article “The U.S. is trying to persuade China to commit suicide”; and commented upon On Geoeconomics. The Chinese version of John Ross article is in Guancha.
This is no more than the sheer desire by Global North enterprises to keep China economically and technologically crippled.