Wednesday, August 08, 2012

China: Blustering Its Way Into the Economic Future

China's Leading Indicator Decline
Leading Indicator:

It contains information on money supply, foreign direct investment contractual value, andShanghai stock market turnover, as well as:

Interest rate spread is the difference between the weighted-average yield of the seven-year or above Treasury bond with those of one year or less.

Consumer Expectation Index is compiled by the CEMAC using a monthly survey conducted in thirty major cities covering 70,000 individuals.

Ratio of industrial sales to production is the ratio of the total value of industrial sales divided by the total value of industrial production in the same month. This ratio tries to capture the inventory cycle in the industrial sector. Industries included are mining and manufacturing.

Number of new investment projects started tracks the number of new fixed-asset investment projects started. The government uses this as a leading indicator for future investment growth and economic expansion.

Index of Logistics refer to the volume of freight transportation and total tonnage of cargo reported by sixteen major coastal ports. _PragCap
If China's leading economic indicators are pointing toward a downturn, once could find no sign of hesitation in China's all-out pursuit of high value foreign acquisitions:
As the map below from Stratfor shows, ever since 2010, when China pledged over $100 billion to develop commercial projects in Africa, the continent has now become de facto Chinese territory. Because where the infrastructure spending has taken place, next follow strategic sovereign investments, and other modernization pathways, until gradually Africa is nothing but an annexed territory for Beijing, full to the brim with critical raw materials, resources and supplies. So while the "developed world" was and continues to deny the fact that it is broke, all the while having exactly zero money to invest in expansion, China is quietly taking over the world. Literally. _Zerohedge

Besides Africa, China is buying assets in Canada, the US, the UK, and elsewhere across Europe, South America, and beyond.

This may well represent an attempt to preserve capital assets which are no longer completely safe inside China. The political stability of China may be just as overstated as the economic stability inside the middle kingdom.

The short term effects of China's commodities buying spree may be bullish on markets. The long term effect may be quite different, if China begins to come unglued. Watch and see.

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