Friday, November 13, 2009


Investors and policymakers worldwide recognize that China continues to increase in importance to all. With a centralized government and a strong balance sheet, China was able to quickly provide stimulus last year. An important part of the stimulus was huge increases in lending (from government controlled banks) starting 4th quarter 2008. At its peak in the 2nd quarter of 2009, Chinese credit growth for a 3 month moving average (annualized) was about 60%. This has since been brought back to about 20% as the Chinese authorities worked to avoid bubbles in their real estate and stock markets.

Even though the Chinese “manage” their economic releases through central government filters, there is certainly significant growth in their economy. This week they released data showing property development and investment for January to October increased by 18.9%. This doesn’t appear to be too speculative as the number for same period of 2008 was 24.6%. The World Bank believes Chinese household incomes are rising faster than prices and therefore affordability is increasing.

Chinese authorities have not raised interest rates, and observers think they will not until first half of 2010 at the earliest. In the meantime it will pay all investors worldwide to give close attention to economic and market news from China to make sure this key growth engine continues to power everyone’s returns.