How Slow IS the Chinese Economy?

04/23/2014 12:01 am EST

Focus: GLOBAL

Jim Jubak

Founder and Editor, JubakPicks.com

The latest readings on China's GDP need to be analyzed further says MoneyShow's Jim Jubak and he shares his analysis.

The worry was that when China got around to reporting first quarter GDP, the numbers would look bad. Well, indeed, on April 16, China did report first quarter GDP and the numbers looked bad. What we had, if you, sort of, go with the official numbers, is, we had a year to year GDP growth of 7.4% in the first quarter, that's down from 7.7% year to year growth in the fourth quarter of the previous year, so that's a decline and a little worse than people thought, or a little better than people thought, but the thing is that we're now at a point, where it's clear that the annual numbers that way, the year to year numbers are not really capturing the slowing of the Chinese economy.

If instead, what you do is you take the growth rate for the first quarter of the year and annualize it, say, “Well, if the economy was to grow at this percentage, how fast would it grow for all of 2014?” And you get about a 5.7% growth rate, which is really, really, way below the 7% rate. It's a more accurate rate because it captures some of the slowing in the Chinese economy that we've seen in the last month, or so, and so, it really does suggest that the fear that the Chinese economy was going to grow slower than a 7% rate is indeed quite, quite probable.

The interesting thing is that we had, on that bad news, we had the Shanghai stock market and the Hong Kong market go up a tiny little bit. Hong Kong was up like 0.11, Shanghai was up like 0.17, so not a big bump, but a move in the direction that you wouldn't have expected, given this bad news.

I think what that reflects is, not a big conviction, not a conviction by everybody in the market, but an early conviction that bad news is starting to get to be enough so that it's speeding up the day when the Peoples Bank of China is going to loosen credit again, stimulate the economy, grow the money supply, all of those things that recently it's very clear the Peoples Bank has had its foot on the brake, month to month growth and credit way down from where it was last month, a drop of something like $70 billion. The money supply growth down to two-year low, in terms of rate, so credit is still being crunched by the Central Bank and the theory is, and I think the reason the market went up on bad news today, is the theory is that we're getting to the end of that process, the economy has slowed so much that the Peoples Bank is going to move in the other direction, take its foot off the brake, maybe put a little bit of gas into the economy and that would be one reason to believe that the decline in the Chinese stock market, the rise in interest rates, all of that are coming to an end and that's why the market was a little optimistic on so much bad news.

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