EC Faltering Thursday – China’s Downhill Move Picks Up Steam

(Chart by Dave Fry)

CHINA!!!

China is the reason so many companies tell you how great their prospects are.  TSLA is going to China, YUM and MCD sell so much fast food in China that now Chinese people are getting fat and having heart attacks – just like we do!  Casinos make their money in China, luxury goods manufacturers do significant portions of their sales there and, of course, it’s the raison d’etre for the commodities industry.  

But what if China is a fairy tale and, rather than a decade of growth ahead, we have a decade of stagnation or, even worse, contraction on the other side of the World?  As you can see from Dave Fry’s FXI chart (above), the Chinese market has gone nowhere this whole decade – DESPITE the S&P starting 2010 at 1,100 and gaining 68% since then.

The WSJ has a list of “China’s Rising Risks,” including:

• Part 1: Banks Feel Strains After Credit Binge
• Part 2: Banks, Bonds Joined at the Hip
• Part 3: Banks Work Around Lending Limits
• Part 4: The Rock Star of Chinese Debt Analysis
• Part 5: Debt Drags on Growth
• Part 6: In China, a Big Bet on Smaller Borrowers
• Part 7: China’s Credit Levels Echo U.S. Crisis

This morning we got data out of China showing Industrial Production growth slowed to 8.6% from 9.7% measured just a month earlier and no, it wasn’t the weather.  Retail Sales fell to 11.8% from 13.6% and Fixed Investments fell to 17.9% from 19.6% and none of those are BAD numbers (still growth, just slower) but, as I pointed out in Monday’s post, bank loans and the bond market there are in no way, shape or form priced for slower growth.  

China’s GDP is “only” $8Tn, a little over 10% of the World’s total.  Our GDP is $17Tn and Europe clocks in at around $18Tn ($20+Tn if you include the UK) and Japan is $6Tn.  Russia is $2Tn, India $2Tn, Australia $1.5Tn, Mexico and South Korea are over $1Tn and then there’s the rest.