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China's slowdown

This note looks at the slowdown now unfolding in China. The key points are as follows:

- Chinese growth has already slowed significantly on the back of slowing exports and a property slump. Growth is likely to slow to 8% in 2009.

- However, a hard landing (say 5% growth) is unlikely: the global financial turmoil won’t have a direct impact on China’s financial system, monetary conditions are now being eased, significant fiscal stimulation is on the way and consumer spending should remain solid.

- The downturn in China combined with recession in the US, Europe and Japan is negative for commodity prices which are unlikely to start recovering on a sustained basis until global growth turns back up again, probably some time next year.

- Chinese shares are down about 70% from their high. Further falls are possible, but they are now good value from a long term perspective.

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