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The Chinese economy will likely slow a bit further, followed by a modest rebound, rather than an ugly hard landing, BofA Merrill Lynch has said in its latest report.
“We believe the Chinese government still has plenty of policy ammunition to battle economic weakness. Absent a dramatic hard landing in China, we expect further impact on China’s closest trading partners, but little net impact on the US and Europe,” it said in its ‘Global Economic Weekly’.
“We also believe that the ugly tail risks for China that many “panda bears” talk about are unlikely to materialize in the next couple of years,” it added.
Overexpansion of some sectors seems to have created a good deal of bad debt and unprofitable companies. However, in BofA Merrill Lynch’s view, the government’s number one priority remains healthy growth and they will likely step in quickly if a crisis emerges.
China has learned from the experience of its recent currency weakening: a poorly implemented devaluation can do more harm than good, the report says.