ABSTRACT
The tremendous growth in savings in China has been matched by an equally significant increase in gross fixed investment over the past decade. When discussing investment in this chapter, we are referring to physical investment, that is, the accumulation or flow of new plant and equipment, housing, and inventories.1 This is in contrast to financial investment, which is more commonly used in everyday discussion; the latter refers to the channeling of savings into different asset classes such as savings accounts, stocks, and bonds. Although the two concepts are clearly related, we must keep in mind that investment (in the context of this chapter) involves actual current production of output (investment or capital goods) that will be used to produce more output in the future. In contrast, financial investment may not result in any current production of output at all. Gross fixed investment refers to investment in plants, equipment, and housing, but excludes inventory accumulation (also known as stock-building); total investment includes the latter.
