The presence of the soft budget constraints mean that there are certain elements of the Chinese economy today, which are much more reminiscent of the USSR and the post Soviet Russian economy, than the NICs of east Asia, at least as far as the corporate sector is concerned. On the face of it, the structure of the corporate sector in Russia in 1998 was very different to what exists in China today. Following the collapse of the USSR, the voucher privatisation from December 1992 to June 1994, which took 10,000 large and medium companies out of the state sector, generally resulted in concentrated private ownership, which it was thought would transform incentives and operational efficiency. The problem though is like China today, many of these nominally private enterprises were fundamentally unviable, but were kept alive by the use of their lobbying power and social importance to obtain resources at both a regional and national level. The regional dimension was critical in Russia where the 'hard state liberals' around Boris Yeltsin, struggled to curb the proportion of the country's economic resources which was taken up by value subtracting enterprises, due to opposition from vested interests mainly regional governors and the powerful enterprise lobby.

Eoin Treacy's view The Deutsche Bank team have been bearish of China for quite some time and have been correct in that the market has continued to deteriorate. This report makes a cogent bearish argument and draws a number of historical parallels which may or may not be relevant. There is little doubt that wide ranging reform is needed if China is to succeed in its aspirations of becoming an economic superpower.

A great deal of uncertainty surrounds the change of leadership in China; slated for later this year. How the new administration deal with the challenge of weaning the economy off a reliance on infrastructure development is likely to have profound effects on the domestic Chinese market and further afield. A failure to tackle this issue will sow the seeds for additional problems later.

The Renminbi fell below the 200-day MA, against the US Dollar, for first time in seven years from early June and spent the last three months ranging below it. The Renminbi pushed back above the trend mean today and a clear downward dynamic would be required to register a failed upside break and signal a return to supply dominance. However, the fact that the pace of the Renminbi's gradual appreciation has changed suggests that the medium-term prospects for a sustained move to new highs is probably much reduced. If a deeper economic malaise is feared, one could not rule out currency devaluation as part of the solution to tackle it.

The Shanghai Property Index broke its seven-month progression of higher reaction lows in July and dropped abruptly to test the 2800 level. It rallied impressively today, suggesting short covering, and a sustained move below last week's nadir would be required to question medium-term scope for some additional higher to lateral ranging.

The H-Shares Index has been ranging between 9000 and 10,000 for more than three months and retested the lower boundary today where it has at least steadied. A sustained move above 10,000 is the minimum requirement to suggest a return to demand dominance beyond the short term.

Fears of an additional slowdown in China have weighed heavily on the industrial metals so it is perhaps noteworthy that an increasing number are demonstrating returns to demand dominance. Another interpretation is they are responding to the potential for additional monetary stimulus from the world's major economies.

Copper has been ranging with a mild upward bias for three months. A sustained move above $3.60 would confirm a return to medium-term demand dominance. Following a sharp decline earlier this year, Aluminium has steadied above $1900 and is now challenging the six-month progression of lower rally highs. Zinc fell less and is also rallying towards the first area of potential resistance. Lead hit a new three-month high today and the benefit of the doubt can be given to some additional upside provided it holds above the $1925 region. Nickel's downtrend lost momentum from June and the mid-August rally has given pause to some of the more bearish forecasts. A sustained move above $17,000 would confirm a return to medium-term demand dominance. Tin found support in the region of the 2011 low in July and staged an impressive rally in August. It will need to continue to find support above $18,000 if recovery potential is to continue to be given the benefit of the doubt.