Another Correlation: What is China's Real Growth Rate?

In the last week of August, Marc Faber gave a signal that all is not well in China. He points out that the Chinese statistics of 7% growth are inflated to the upside. There is a big chance for a hard landing to come in China because many statistics point to a significant slowing of the Chinese economy. For example, in July, industrial production declined sharply (Chart 1).

Chart 1: China Industrial Production (yoy)

It is very important to know that commodity prices are completely dependent on the growth of China as China is the biggest consumer of commodities in the world. If for example, the U.S. slows down 10%, it would be completely meaningless and wouldn't have any influence on the price of commodities. The reason is that the U.S. GDP consists for 80% of services, which don't use any commodities (Figure 1), while China's GDP consists only for 44% of services (Figure 2). So all eyes should be on China for the commodity investor.

Figure 1: Composition of U.S. GDP

Figure 2: Composition of GDP

So what is the best way to find the real growth of China?

Find out in the full version of this article.