Why What Happens to the Chinese Economy Is Critical to America

By: InvestmentContrarian

George Leong writes: The Chinese experiment is over—at least that’s what some in the financial media are saying. Well, guess what? It’s not over, but there will be hurdles along the road for China, as the country struggles to drive its domestic consumption and make sure the economy doesn’t tank.

The reality is that what happens in China is critical to America and the global economy. In fact, I will go as far as to say China is an increasingly important barometer for global business.

That’s why I closely monitor what is happening in the country, due to its impact on the U.S. economy. Trust me when I say that if China’s gross domestic product (GDP) growth was still growing at double digits, things would be much better than they are at this stage—but they are not.

I was just reading that the country has dictated that more than 1,400 companies spread across 19 industries will need to cut their respective excess production capacity in 2013, according to Bloomberg. (Source: “Beijing orders 1,400 firms to cut capacity,” China Economic Review, July 26, 2013.)

Eliminating excess production capacity is simply another way of saying that China is expecting its GDP growth to stall, perhaps even more than many expect. So, maybe we will see a sub-seven-percent GDP growth reading in China. This order by Beijing clearly indicates there could be more bad news on the horizon and it could end badly.

Moreover, you also have to wonder: how accurate is the GDP growth reading out of China? Who knows? But given all of the recent economic evidence of slowing in China, I wouldn’t be surprised if the GDP growth was already below seven percent.

If this is the case, then you also have to wonder if the global economy is as good as some are suggesting in terms of growth. Maybe the 1.8% first-quarter GDP growth for America wasn’t an aberration, and we need to be worried.

And to make matters worse, if you discount in the inflation, the real GDP growth declines to essentially zero, based on the annualized 1.8% inflation in June, as reported by the Bureau of Labor Statistics. That’s no growth folks, despite the massive stimulus.

Simply put: the United States is in trouble, and the situation in China is really beginning to be problematic.

All I can say is to closely monitor China.

The reality is that if China is stalling, so is the United States and other regions in Asia, Europe, and Latin America. All of that money in the pipeline, and the economies are still at a standstill.

This article Why What Happens to the Chinese Economy Is Critical to America was originally published at Investment Contrarians

By George Leong, BA, B. Comm.
www.investmentcontrarians.com

Investment Contrarians is our daily financial e-letter dedicated to helping investors make money by going against the “herd mentality.”

George Leong, B. Comm. is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services. See George Leong Article Archives

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