woensdag 29 augustus 2012

Another Correlation: What is China's Real Growth Rate?

In the last week of August, Marc Faber gave a signal that all is not well in China. He points out that the Chinese statistics of 7% growth are inflated to the upside. There is a big chance for a hard landing to come in China because many statistics point to a significant slowing of the Chinese economy. For example, in July, industrial production declined sharply (Chart 1).

Chart 1: China Industrial Production (yoy)
It is very important to know that commodity prices are completely dependent on the growth of China as China is the biggest consumer of commodities in the world. If for example, the U.S. slows down 10%, it would be completely meaningless and wouldn't have any influence on the price of commodities. The reason is that the U.S. GDP consists for 80% of services, which don't use any commodities (Figure 1), while China's GDP consists only for 44% of services (Figure 2). So all eyes should be on China for the commodity investor.

Figure 1: Composition of U.S. GDP
Figure 2: Composition of GDP
So what is the best way to find the real growth of China?

Find out in the full version of this article.

3 opmerkingen:

  1. Very interesting post, very insightful. The analysis of power generation is suggesting that China's economy stopped growing in July and could be heading for recession: lets hope there is a rebound before that happens.

    There was an interesting article in the Economist today ("Slow boats")that suggests monetary stimulus is no longer having any effect, in which case the Chinese goverment migt be considering to embark on a fiscal stimulus package, which fits in with my theory that this will be announced in November when the new Politbureau takes office.

    1. Indeed, stimulus doesn't generate GDP growth. But China will announce stimulus, there's no doubt about that because it's collapsing right now. I'll read that article and see if it brings me new ideas.