This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Mid-Year China Check-In

Slowing Chinese economic growth has been a prominent topic of concern for the better part of 2012.

In the second quarter, weak Chinese data -- slowing GDP growth, declining inflation, weak manufacturing results -- led many folks to fear the world's second-largest economy was headed for a hard landing.

But in our view, folks fretting about a Chinese hard landing are likely missing this year's full story -- and powerful recent developments in China's monetary policy.

As Fisher Investments' CEO Ken Fisher recently wrote , 2012 marks a political "election" year for China. These power shifts, held every five years, are anything but an exercise in democracy.

The ruling Communist Party's members (only about 2.5 million people of China's one billion-plus population) indirectly select the country's next president and members of the powerful nine-member Standing Committee.

It's actually a little more complicated than that. In essence, locally elected officials select the next rung of leaders, who select the next rung and so on -- all the way to the top, culminating in the selection of the president and premier.

However, don't mistake this for bottom-up representation. In practice, power flows the other direction. However, selections are largely dictated in advance by the party, so the election is really a bit of a façade.

With so much of the populace lacking a real political voice to express discontent, China's authoritarian rulers fear social unrest. As such, during these election years, Chinese officials are incentivized to support economic growth as a tool to maintain general contentment.

To accomplish this election-year goldilocks scenario, China flexes its control over bank loan quotas, which subsequently controls money flow into the economy. The year before the power transition, quotas are generally tightened to slow inflation--and in the transition year, they're loosened, goosing growth.

In our view, this is the real story: China's rulers like power and, given their vast reach over the economy, will do what it takes to maintain it. Our research shows they've been relatively successful at this -- historically, election years feature the fastest average growth, and the year prior the slowest.

1 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,380.41 +263.17 1.63%
S&P 500 1,886.76 +24.00 1.29%
NASDAQ 4,258.4380 +41.0480 0.97%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs