Monday, October 19, 2015

Economy: China - Right On Track

(Drivebycuriosity) - If be believe the media then China is about to crash. This morning we learned that China´s economy grew 6.9% in the last quarter, slower than before (plus 7.0% in Q2) but better than expected (6.8%) (bloomberg).  Not really a crash! And the Chinese retail sales grew 10.9% in September after 10.8% in August. This is the second acceleration back-to-back and the best retail number for this year (screenshot below  tradingeconomics).

China´s consumers are benefitting from swiftly climbing wages (tradingeconomics). They also are profiting from the recent stimulus measures (reduced interest rates, stock purchases with government money, more infrastructure investments and more). Peking University economist Christopher Balding has calculated, that the bailout (stock purchases with government money) and other stimulus measures announced since the start of the Chinese equity panic in late June poured a total of $1.3T, or more than 10% of GDP, into the economy (seekingalpha).  China´s consumers also get a lot support from cheaper oil and other commodities which leaves them more money to spend for other goods (like electronics).

The pick-up in consumption shows that China´s economy is right on track. The country is transforming from an industrial & export-focused economy to a modern system like the US, where most of the GNP is fueled by consumer spending. In the US consumer spending is the engine of the economy, China, which still depends too much on exports & industrial production is on the way to became a modern economy. I believe that the recovering retails sales will stabilize China´s transforming economy and will foster economic growth.

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