<blockquote>
<p>Can China do well without investments?</p>
</blockquote>
<p>No country can do well without any investment. Country's production function will be given by some <span class="math-container">$Y=F(L,K)$</span> where <span class="math-container">$L$</span> is labor and <span class="math-container">$K$</span> capital. For example, it could be given by let's say <span class="math-container">$Y=\sqrt{LK}$</span>. <span class="math-container">$K$</span> naturally depreciates over time. Machines break down, buildings eventually get cracks etc., the rate of depreciation would be denoted by <span class="math-container">$\delta$</span>.</p>
<p>The change in capital stock is given by:</p>
<p><span class="math-container">$$dK/dt = I_t - \delta K_t$$</span></p>
<p>It is trivial to see that if <span class="math-container">$I$</span> is always zero then eventually <span class="math-container">$K$</span> will become zero at some point in the future.</p>
<p>Virtually all modern production requires <em>some</em> capital, with very few exceptions. So regardless of how the function <span class="math-container">$Y=F(L,K)$</span> looks like we can say with certainty that <span class="math-container">$F(L,0) \approx 0$</span>.</p>
<p>However, note that the premise that <span class="math-container">$I$</span> will drop 0 as a result of the Chinese policies is not necessarily justified. There is no reason why meddling in company payout policy should drop <span class="math-container">$I$</span> to zero per se. Don't misunderstand me it can happen if for example CCP could credibly commit to not allowing companies to pay out any profits <strong>ever</strong>. However, I highly doubt CCP would do that. Although of course 'never say never' the ideological insistence on zero-covid strategy in China shows CCP is willing to do damage to the country in pursuit of ideology. Nonetheless, I do not think that chances that they would go so radical as to forever forbid any distribution of dividends.</p>

CC BY-SA 4.0
2022-11-03T20:32:46.537Z
2022-11-03T20:32:46.537Z
1muflon1
<p>The Chinese stock market has be plunging amid fear that the Chinese government will not allow Chinese companies to freely distribute their earnings. For example by forcing them to invest for “common prosperity” as they have done with Alibaba and Tencent. If China goes too far, Chinese companies should find it very difficult to raise capital from both foreign and domestic investors.</p>
<p>What I don’t understand is why people are even afraid if this? It seems like it can’t work. If Chinese companies can’t raise capital, won’t the entire economy be held back in a very significant way?</p>
<p>It feels like I’m missing something. Can the Chinese government significantly hurt their companies’ ability to raise money in a way that turns out well for them?</p>

<macroeconomics><china>
Can China do well without investments?
C. E.
# Can China do well without investments?

(Asked by: username_0 on 2022-11-03)

The Chinese stock market has be plunging amid fear that the Chinese government will not allow Chinese companies to freely distribute their earnings. For example by forcing them to invest for “common prosperity” as they have done with Alibaba and Tencent. If China goes too far, Chinese companies should find it very difficult to raise capital from both foreign and domestic investors.

What I don’t understand is why people are even afraid if this? It seems like it can’t work. If Chinese companies can’t raise capital, won’t the entire economy be held back in a very significant way?

It feels like I’m missing something. Can the Chinese government significantly hurt their companies’ ability to raise money in a way that turns out well for them?

**Tags:** macroeconomics, china


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## 1 answers

### Answer by username_1 on 2022-11-03. Score: 1

> Can China do well without investments?

No country can do well without any investment. Country's production function will be given by some $Y=F(L,K)$ where $L$ is labor and $K$ capital. For example, it could be given by let's say $Y=\sqrt{LK}$. $K$ naturally depreciates over time. Machines break down, buildings eventually get cracks etc., the rate of depreciation would be denoted by $\delta$.

The change in capital stock is given by:

$$dK/dt = I\_t - \delta K\_t$$

It is trivial to see that if $I$ is always zero then eventually $K$ will become zero at some point in the future.

Virtually all modern production requires *some* capital, with very few exceptions. So regardless of how the function $Y=F(L,K)$ looks like we can say with certainty that $F(L,0) \approx 0$.

However, note that the premise that $I$ will drop 0 as a result of the Chinese policies is not necessarily justified. There is no reason why meddling in company payout policy should drop $I$ to zero per se. Don't misunderstand me it can happen if for example CCP could credibly commit to not allowing companies to pay out any profits **ever**. However, I highly doubt CCP would do that. Although of course 'never say never' the ideological insistence on zero-covid strategy in China shows CCP is willing to do damage to the country in pursuit of ideology. Nonetheless, I do not think that chances that they would go so radical as to forever forbid any distribution of dividends.


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