This study seeks to estimate fixed capital formation according to western definition, to evaluate investment strategy and to appraise investment efficiency in Mainland China.
In estimating fixed capital formation, we utilized the approach developed by Yeh, in which solutions are derived from aggregate data. Our results indicate that the ratio of fixed capital formation and investment to GDP was higher during 1975-1980 than during 1953-1957 in Mainland China. Furthermore this ratio has been higher in Mainland China than in any other country. We also noted another particularly interesting development, viz., Mainland China has exhibited a markedly higher ratio of inventory than any other nation.
Mainland China has invested more than half of its fixed capital formation in the industrial sector; a strategy different from many other countries that allocate more resources to the service sector. Moreover, the ratio earmarked for the industrial sector increased from roughly 30% during 1953-1957 to 52.9% during 1975-1980. Compared with many other nations, the ratio invested in non-productive sectors such as housing and education was low.
An appraisal of the index of economic efficiency highlights the deterioration of economic efficiency in Mainland China. This is because of serious political instability and increasingly diversified commodity production which have resulted in the awkward operation of the planned economic system.
