A Dragon in the Mist?

How fast is China growing?

Part of “Nine Dragons" by Chen Rong – Museum of Fine Arts (Boston). Source: Wikipedia

That’s what everyone wants to know. Their economy represents 15% of global GDP—the second largest in the world. Officially, they’re growing at 7% per year, down from the double-digit growth they boasted a decade ago, but still more than twice the rate of the developed world. China has been following the same script that every other developing nation has–turning farmers into factory workers, making them much more productive until the entire economy lifts off.

The problem is, who is going to buy all that production? Until now, China has been able to export its way to prosperity. But what works when you’re little doesn’t work so well when you’re a giant. China has been planning to shift its economy from export-led, investment-driven to consumption-led, consumer-driven, but that process can be bumpy.

Additionally, their economy is basically a black box. Alan Greenspan once dismissed the Chinese statistical bureau as an agency that determines the quarterly GDP statistics on the first day of the new quarter. The country’s premier, Li Keqiang, admitted as much to the US ambassador some time ago. It’s hard to get an accurate read of their internal dynamics. So outside observers use other data, like power generation or passenger travel, to come up with estimates.

Source: Wall Street Journal

These questions are roiling global markets. If China really is growing at the official rate, their economy is generating the equivalent of a Switzerland every year—50% more than new US production. But if it’s filled with zombie factories making things no one wants, kept alive through restructured loans because the managers are politically connected and the factory jobs are essential to social stability, then there’s a problem. All we have now, though, are stories. And the plural of “story” is not data.

Confucius once wrote that true knowledge consists in distinguishing between what we know and what we don’t know. Right now, no one knows very much.

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2017-07-17T12:22:39+00:00 September 2nd, 2015|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
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