Tuesday, September 30th, 2014

China Inc. Blows Past Expectations, Lifts Markets

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China Leads World Markets Out of Slump

China Inc. Blows Past Expectations, Lifts Markets
About: PIIGS (Portugal, Italy, Ireland, Greece & Spain), global economic recovery, Chinese exports, Chinese stock market, Chinese stocks, China’s real estate market

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Europe’s debt fever is infecting markets around the world, raising investor fears that global economic recovery could be ruined by a default among the PIIGS (Portugal, Italy, Ireland, Greece & Spain).

But China rocked the world’s stock markets following a Reuters news flash that Chinese exports are growing faster anyone imagined. Chinese exports in May grew by a stunning 50 percent from a year ago. That figure that blew past all expectations and reassured investors who were concerned that Europe’s debt problems might dampen demand for Asian goods.

European stock markets, which had been in a funk for days, finally made a quick turnaround and eked out a small gain. U.S. stock markets also opened strongly on the encouraging news from China. Chinese stock markets led the rebound, registering their strongest gains in two weeks, up 2.8 percent, bolstered by those soaring export figures.

The 50 percent jump in Chinese exports dispels fears that Europe’s malaise might derail China’s surging economy. In fact, the European Union is China’s biggest export territory, making up 20 percent of total overseas sales. The Chinese export rise indicates healthy consumption from the continent, despite deficit struggles among European governments.

Economists surveyed by Bloomberg had only expected a 32 percent gain in exports, based largely on a rebound from last year’s global economic slump. The 50 percent gain shows considerable strength in global demand beyond anything that the experts had predicted.

China Leads World Markets Out of Slump

Chinese stocks have suffered more than their global counterparts during the first half of the year, as investors in Shanghai and Shenzhen worried that a clampdown on lending by Beijing would slow economic growth and possibly implode China’s property market. But new loans again exceeded expert forecasts.

With 630 billion yuan ($92 billion) in new loans, Beijing has clearly signaled that it is not slamming the brakes on its easy money policy despite increasing inflation. CPI inflation came in at 3.1 percent, a figure that exceeds the government’s 3 percent target for the whole year. A sharp increase in inflation beyond the current figure would be cause for concern.

The bottom line from the early release of these figures cuts two ways. First of all, we have a clear-cut indication that China’s economic health and the global economy are on a sharper upswing than most forecasters had predicted.

Secondly, we see once again that China is taking center stage and a leadership role in global economic trends. The news from China drove markets around the world into positive territory. Clearly, China is the engine of Asian economic recovery, and it has become a driver and an indicator of global economic trends.

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