Chinese Dreams

What’s going on in China?

Photo: SP. Source: Pixabay

Given the size of their economy, it’s an incredibly important question. The global economy totals about $78 trillion. The US is about 22% of that, Europe is 20%, and China is 13%. Together, our three economies make up 55% of the world’s commerce.

So it’s crucial to understand what’s happening. We knew that China couldn’t export its way to prosperity forever. Eventually, it became limited by the size of its trading partners. So China has been shifting to a more domestic, services-driven economy—like most of the developed world. Officially they’re growing at around 7% per year—which makes their economic growth double that of the US, in raw dollars, and triple that of the Euro-zone.

But there’s a lot of skepticism about these official numbers. Some folks have been looking at electricity consumption or other measurable items as proxies for government statistics. These indicate that national electricity consumption is running about 5% per year. And recently, with little fanfare, the official seasonally-adjusted GDP numbers were revised downwards.

Source: Stats China

Quarter-on-quarter growth their economy is growing 1.1%. This implies an annual growth rate of about 4.5%, not 7%. That’s a lot slower. Combine that with the implied growth rate of 5% that comes from utility consumption, and you have a much more somber view of China’s current activity.

When it comes to the global economy, the US, Europe, and China dominate the discussion—and for good reason. The rest of the world either trades with these economies or is affected by them in a major way. We have a pretty good idea what’s going on here and in Europe, but China’s a mystery. It’s hard to know what’s happening in a country with a billion people, where communication and other infrastructure is in a less developed state.

The Chinese sage Laozi said that the “Tao” that can be explained is not the true way. It seems that the Chinese economy that can be explained via statistics is not the true China, either.

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2017-07-17T12:22:05+00:00 April 18th, 2016|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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