Salient to Investors:

Clive Crook writes:

  • Even the most pessimistic analysts expect growth to fall to 3 percent or 4 percent a year. The underlying drivers of China’s growth remain strong.
  • China’s stimulus program during the post-2008 global slowdown was a success, and China emerged the global recession virtually unscathed. China’s public debt is thought to be less than 50 percent of GDP so there is scope for another big stimulus if needed.
  • The real danger for China is that the financing model for subnational public investment has been dangerously overstretched – the money has mainly come from short-term bank lending, so there’s a real possibility that if the investments fail to generate high economic returns, the revenue needed to service the debts will fall short.
  • Many observers believe China has recently invested in projects that are marginal, at best.
  • A real estate crash might not be as bad as in the U.S. because China’s borrowers are much less leveraged, but it would brake the growth on which everything else depends.
  • Expect setbacks, but China’s vast population, daunting work ethic, untapped catch-up opportunities, and an unsurpassed appetite for capitalism are formidable.

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