NEW YORK ( TheStreet) -- Although I have been bearish on China for 18 months or so, late last year our work showed there would be a bear market rally in the China economy and stock market. That happened right on schedule.The latest GDP growth number increased to 7.9% from 7.4% the prior quarter. We don't believe China's governmentally produced economic numbers any more than we trust those from Washington. Our expectation was based on the national congress and appointment of a new China leadership. Engineering a period of optimism makes it easier for a new government. And under communism, what the government wants is what the government gets, even if it is a Potemkin village. However, foreign direct investment flows in December continued the one-year declining trend, down a hefty 4.5% for the month. That means foreign capital is flowing out. In emerging markets, that's usually a very big warning signal. It's much more important than the GDP number. Late last year, China relaxed rules on foreign investments in Chinese stock exchanges. To us, this was a confirmation of the urge to raise foreign exchange and reverse the outflows. China needs foreign exchange to pay for its global shopping spree. They are buying up natural resources around the globe at an accelerating pace. The big deals get publicity. But there are many smaller deals you never hear about. China knows that the only real assets are what is in the ground, not what the central banks create with their computers. They also need foreign exchange to support the huge gold purchase program. Currently China is the second-largest gold producer. We suspect that China also wants to be the largest gold owner in the world. China's big problem is that it is so dependent on exports. It's about 70% of the economy. And it can't do much about the decline in export growth. To see what's happening to exports, let's look at shipping, as obviously the goods have to be shipped. The chart of the Baltic Dry Freight index shows the shipping rates. If there were a meaningful pickup in shipments, we would expect freight rates to rise. Obviously, that's happening. Here is a chart of the Baltic Dry Freight index going back to 2002 (courtesy of www.investmentTools.com).