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China – Saving Grace for World Economy!

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Further to my previous post on how corporations in US are still doing well (with highest proportion of companies with positive EPS) and how we’re still not going to have recession this time, The recent economic news for emerging economies like China are already showing signs of marginal rebound in economic growth.

The monthly manufacturing PMI data for China released yesterday has improved marginally indicating the Industrial growth is still consistent with the target 13% y-o-y!

How China is a significant driver of global economy?

– China is fast becoming an economic monster, moving from low-end assembly lines and garment sweatshops to high-end products and innovative approaches to green technology, including wind turbines, solar panels and electric cars

– China continuously penetrating in other nascent emerging economies like countries in African continent. Investments in mining sector, land acquisitions and corporate acquisitions are just reinstating this fact.

– China is in a stage where households are massively, aggressively upgrading their consumption. So along with exports, the GDP is also diversifying towards domestic consumption over last few years

– If one sees slowdown, only increasing proportion of investments will help stirring demand. If you look at China, investments accounted for 45% of GDP in 2010

– Hundreds of thousands of new Chinese companies have made this country the world’s most competitive business environment. Indeed, China is now the world’s largest and fastest-growing source of entrepreneurial start-ups.

It is also an incubator for large businesses, both foreign and home-grown. Nearly 300,000 foreign-invested businesses have been established in China

What could go wrong?

– Recently, the monetary policy of the government has directed the reserve ratio for larger banks must be above 21.5% (similar but to a much larger magnitude of what is happening in India). A high reserve ratio ?lower investments ? decreasing economic growth? less money being put into building homes and businesses the overall economy slows down ? trigger a recession if left unattended.

– At 5.5 percent, China’s consumer inflation is not ready to bow down. This problem is further aggravated if QE3 explodes in US

Final word is China has not completely decoupled itself from world economy (especially to the major export countries in North America and Europe) but it has huge potential and capabilities to be the least affected one.

Both China and India are now concentrating in creating domestic demand and counter inflationary measures to help them tackle the fear of slowdown.

What is your opinion on China’s position in today’s volatile market?

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