Deflation: the spectre at the feast

China may be on the brink of becoming a deflationary influence on the world. In the wake of the global financial crisis China embarked on a credit-fuelled investment boom, the like of which the world has never seen. Total credit in the economy grew by some $11 trillion in the period of five years from 2009 (equivalent to the combined GDP of Germany, Japan and Canada)*, with much of this being financed by an unofficial shadow banking system which has very little rigour as to credit quality.  .

Iain Stewart, Portfolio Manager, Newton

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