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China scares us because it looks like a bubble economy. Understanding these kinds of bubbles is important because
they represent a situation in which standard valuation methodologies may fail. Just as financial stocks gave a false
signal of cheapness before the GFC because the credit bubble pushed their earnings well above sustainable levels
and masked the risks they were taking, so some valuation models may fail in the face of the credit, real estate, and general fixed asset investment boom in China, since it has gone on long enough to warp the models’ estimation of
what “normal” is.