China, once the darling of all investors, has since the collapse of 2008 thrown them one investment curve ball after another. This year is no exception. June in particular saw Chinese financial markets plunge under the weight of stark liquidity shortages, misdirected credit flows, gyrating interest rates and frightening signs of economic weakness. Many commentators in response have voiced fears of a Chinese collapse on a par with the U.S. subprime crisis and, for the second time is as many years, they have prophesied a "hard landing" for China's economy.
Although it faces many difficulties, including a tricky fundamental adjustment, China doubters surely overstate the downside. Beijing has an array of policy options at its disposal with which to mitigate strains, while China's economy and its financial markets still offer many exciting opportunities. Rather than economic and market decline, likelihoods suggest that China will avoid financial collapse as well as the dreaded hard landing, even as Beijing pursues longer-term economic and financial reform. Continued uncertainty and unavoidable missteps will create volatility going forward, but over the longer term, exposure to this economy and its financial markets should produce handsome rewards.
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