Is the extreme pessimism towards China justified?

Running a two-speed economy

A recent newsletter, from hedge fund manager Kyle Bass, provocatively concluded the Chinese economy faces an imminent crisis.

Against a backdrop of weak asset market performance, policy mistakes and growth worries, Bass' report understandably struck a chord. But is his extreme pessimism justified? We think it is hard to argue the economic outlook has deteriorated dramatically, but data continues to point to headwinds. On balance, we see a two-speed economy with the service sector and innovative manufacturing looking resilient, while old industries struggle. Yet Bass is right on one big point; financial risk remains the key threat to the outlook. In order to understand China today, you need to understand how ...