Usually the rest of the economy follows real estate. An intensified credit crunch would assure that. China's stock markets are reflecting those concerns.
More bad news for China from Europe. On March 21, we got the manufacturing survey numbers (PMI, or Purchasing Managers Index) for the U.S. and Europe. The U.S. is doing fine, with the PMI rising from February. But what about Europe? The PMI numbers are now below 50 in the EU, and even Germany has now dropped below 50, which is the dividing line between expansion and contraction. In other words, manufacturing is contracting in even the strongest European economy.
Why is this important? Because Europe is a big customer for Chinese goods. It means that there won't be a recovery in the important China export market. And that's bad for China and the globe.
The big question is this: Will the government be able to accomplish its goal of fueling the consumer sector to take up the slack from exports? It tried to boost consumer consumption over the past seven years. However, that portion actually declined from around 45% to 34% of GDP. That's the wrong direction. Perhaps the government will be more successful in the future. If so, it would be bullish for the world.The hope for China is that there will eventually be a global economic recovery led by the U.S. This would fuel the most important economic sector of China: exports. For now, investors should keep a careful eye on the charts. In our CHINA BOOM-BUST ANALYST letter, we have a more extensive analysis with a variety of charts. If you agree that China's fate is important for the globe, read more at that link. Written by Bert Dohmen. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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