Industry news
Chinas economy is still strong
There are few mysteries more confounding to the modern investor
than the Chinese economy. Official statistics are so mistrusted and government
intervention so rampant that analysts can’t agree on how fast the economy is
growing or whether shifts in economic activity are evidence of private-sector
strength or bureaucratic meddling.
YTD Supply Flex-PCB machines, tape applying machine, adhesive
tape die cutting machine
Last summer’s 40% decline in the Shanghai Composite stock index,
followed by steadily declining official growth statistics, has added
credibility to the argument that China’s economy is a punctured bubble,
inflated by debt and government-sponsored investment and quickly heading
toward collapse. This week there was more bad news, with the private
Caixin/Markit Manufacturing Purchasing Managers’ index falling to 49.2,
indicating that the Chinese manufacturing sector is in contraction. Cue
widespread panic over China and emerging markets in general.
But as much as this “hard landing” theory has gained adherents
over the past year, a collapse has yet to come. Carl Weinberg, chief economist
at consultancy High Frequency Economics, calls for a little perspective when it
comes to the country. The indicators that bears find so damning (industrial
sector stagnation) can also be interpreted as evidence of an economy
experiencing a humdrum cyclical downturn and of China’s transition from a manufacturing-based
economy to a wealthy, services-driven one. “What G-7 country wouldn’t trade its
growth rate for China’s?” he asks, pointing out that even the most pessimistic
estimates of Chinese GDP growth are twice that of the U.S.
Meanwhile, there are encouraging signs from credible sources
that China’s economy is still strong. One stunning sign of how much cash
China’s economy is producing is the fact that the country continues to export
$1 trillion in capital a year. That means Chinese investors are buying in
foreign assets roughly what the entire Mexican economy produces each year. If
only the rest of the world had similar problems.