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Is China hot or overheating?

Runaway inflation, a looming real estate and credit bubble, the shadow banking system and rapidly declining exports, are just some of the potential problems which many believe plague the Chinese economy.

It’s amazing how much things have changed.  To be sure, the days of believing that China’s robust economic growth and rock solid fiscal position could bail out the economies in the West are clearly over.  Runaway inflation, a looming real estate and credit bubble, the shadow banking system and rapidly declining exports, are just some of the potential problems which many believe plague the Chinese economy.  Scarier terms have rarely been associated with a single country.  On the other hand if you talk to business owner, residents and even the majority of investors in the region you will find that for the most part, optimism still prevails.  Are we missing something or is this wishful thinking?

 

As a global organization, we are fortunate to have 100 fund analysts on the ground in 12 countries, who speak to thousands of investment managers about their respective investment strategies and views on the global economy. In many cases the conversation turns to China, so we thought we would share some of their insights with you.  It appears that although there is little visibility into China’s economic situation in the short term, on the whole managers are still relatively bullish about the country’s long-term prospects.  To provide some context to the manager views, which follow, we summarize below the potential headwinds that the Chinese economy is facing.

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