China, China, and More China

07/12/2013 9:00 am EST


Jim Jubak

Founder and Editor,

In light of the recent data from China, Moneyshow's Jim Jubak suggests that investors should focus on their economy as it may play an important role in the future growth of the global economy.

For the weeks ahead watch China, China, and more China, and I don't mean the stuff that you've got sitting in your cabinet at home.  Okay.  On July 10 we had numbers out of China that indicated, well, a discouraging trend.  We had a fall in exports for June year to year of 3.1%, and we had a 1% decline in imports.  In both of these areas, economists before the announcement were expecting growth.  They were expecting about 3, 3.5% growth in exports and about 6% growth in imports.  The fact that these numbers both turned negative really I think is an indication that China's economy is slowing.  It may be slowing even more than expected, and we're waiting to see how that plays out, that in the first quarter we had 7.7% year to year growth in China. 

Second quarter looks like about 7.5, may be a disappointment, the numbers were announced on July 15, and then the question is how far down do we go, because the big crackdown that the Peoples Bank of China had on lending isn't really fully reflected in the second quarter numbers, so you could see a drop to as low as 7, 6.9, something like that in the third quarter. 

The reason that's important is while everyone knows that the numbers out of China are cooked, that the government can, if the government really wants 7.5% growth it can manage to report 7.5% growth, so what does it mean that China might actually report less than 7.5?  7.5 is the official target for 2013.  If the government decides that it's going to miss and announce a miss, it means that the government has decided that it wants to tell people the economy, investors, speculators, et cetera, that growth is not as important as it was, that China is willing to sacrifice some growth to get better control over its money supply. 

All these would be a big sign of changes in fundamental policy, which the markets in China and China's customers abroad have always assumed the Chinese government would do pretty much anything to make sure that it had 7.5% or more. Remember the days when China was growing at 10.5%, or more growth.  A signal like this, where China's official numbers are below the target, would be a sign to say, hey you guys out there, these assumptions are no longer valid. You can't rely on it. You can't invest with that in mind.  It would be really throw all of this years and years and years of thinking about how you go about investing in China and when you buy and when you sell, up for grabs. 

It would cause immense turmoil in the markets, and you'd have to say this is what the Chinese government would want, that this is not going to happen by chance.  Peoples Bank is not doing what it's doing just because it has to. There's conscious policy going on here, and we'll see as we get numbers for second and third quarter, the Chinese government looks like it's trying to say hey, we're really serious about getting our financial system in better shape and we're really serious about reordering our economy so that we don't rely on exports quite so much.  As I say, since China drives a lot of the global financial markets, the thing to watch, China, China, and more China. 

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