BTIM: Why China is the new ‘old’ Japan

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With the PBoC just aggressively devaluing the yuan again today, this article published yesterday by Samir Mehta, Senior Fund Manager at BTIM, ‘Why China is the new ‘old’ Japan’ is an interesting read. ‘Old’ Japan taught us that intervention helps ‘zombie’ companies stay alive – it encourages further misallocation of capital. As the Chinese government tries to maintain the level of an index by buying the shares of a broad range of companies, it is impossible for them to allow any of those companies to shut down or go bankrupt. However bad a company’s performance, banks and other lenders will therefore be forced to support its operations. Accounts might have to be massaged to show profits, even when cash flows are deteriorating. Already, there is serious evidence of a slowdown and deflation in China. Stuff gets produced in China even when demand is inadequate. Read the full article here (VIEW LINK)


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