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Gold Prices Fall Amid Rate Jitters; Copper Steady as China Stimulus Eyed 
China's state-owned banks will support its highly indebted companies. China should thus avoid a recession. However, Japan shows that keeping many seemingly dead companies ("zombies") afloat weighs on the long-term growth prospect of a country. China is unlikely to recover quickly.The Chinese state and its banks have many resources to reduce the imbalances of the Chinese economy over time and avoid a recession.
The Chinese government attaches at least as much importance to social stability as the Japanese government did 25 years ago. It is also likely to advise its banks to support large companies in financial difficulties, says Commerzbank.
This will weigh on China's long-term economic growth for three following reasons as Commerzbank notes:
- Firstly, seemingly dead companies with their low profits invest little and barely recruit more staff. Chinese industrial enterprises have already generated less profit since the beginning of the year compared to the same period last year.
- Secondly, companies that are kept artificially alive often defend their market shares by offering their products at below cost. Through this price dumping, they also depress the profits of healthy companies, which hinders their economic development.
- Thirdly, many healthy companies that have not obtained sufficient loans from the stateowned banks have to resort to shadow banks and pay higher borrowing costs. The percentage of shadow banks in total borrowings has already risen at a disproportionately high rate in past years.
The Chinese economy will not stagnate for ten years like Japan. Per capita income in China is much lower than in Japan in the 1990s, the economic catch-up phase is far from over. But a zombification could slow the growth of the Chinese economy for years. In any event, Chinawill not recover quickly - unlike the Asian tiger economies after the cleansing storm of the Asian crisis in 1997/98.
