Investors are focused on the future prospects of the Chinese economy. Will China suffer the fate of the "middle-income" trap? Have institutional constraints become too prohibitive to allow for further growth? And importantly, what is the risk of an entrenched slowdown in the economy, in which case a much weaker currency may be appropriate?
Some of these worries have recently been intensified by a sharp deceleration in private investment. A more careful look, however, suggests that this is relatively concentrated in the "old economy," where returns have been weak. The deceleration in fixed asset investment is manifested most acutely in energy and construction-related building materials, which in turn reflect a significant decline of global energy prices and a prolonged downturn in domestic construction.
