Having a Command Economy does not solve all issues
It all comes down to incentives and unfortunately the incentives in the Chinese economy are leading to very poor investment decisions.
The government have lured numerous industries into running at a loss because of the failed policies. Whilst the industries have grown, they have grown unprofitably. Much of the infrastructure that has been built in the 4 Trillion Yuan stimulus is expected to not return enough to pay the debt load leading to the enormous roll over of local government debt.
I think the latest reports of the solar industry illustrate how backward the Chinese economy is and why we believe that there is still a way to go on the downside in the rebalancing of their economy.
We continue to fear significant downside in the Chinese economy and the flow on effects for Australia could lead to an extended period of less than acceptable returns.