From my faraway spectator’s perch, the main thing that I think I understand that maybe people in China don’t is that countries going through rapid economic development inevitably run into trouble. It might be a financial panic, a political crisis, a period of stagnation or all three. This trouble doesn’t have to mean an end to progress, but it does bring an interruption, and often a change of course.

China’s economic policy makers have been astute students of what has worked and what hasn’t in other countries, and they’ve definitely found a way around the financial-crisis-every-decade-or-so cycle that characterized economic development in the U.K. and the U.S. during the 19th century. Annual GDP growth has topped 7 percent every year since 1991 and it looks like, officially at least, it will hit that target again in 2015. But continuing at or near that pace, uninterrupted, for years and years to come? I don’t buy it.

David Fuller's view

I do not think anyone really expects that China can maintain a GDP growth rate near 7% but that is not the point.  The UK and many other developed economies are competing to attract China’s high-spending and well behaved tourists.  China is also the most important export market for most multinational companies, particularly those in the consumer products industries.

This is partly due to the size of China’s population but consumer spending is also a good sign of economic confidence and GDP growth.  My guess is that China’s economy is still growing faster than those of other countries, with the possible exception of India, which has a much smaller and less developed economy. 

Meanwhile, China’s stock market has steadied, as you can see from these charts of the mainland Shanghai Composite Index (weekly & daily) (p/e 19.06 & yield 1.71%).  It is 7.74% higher in US Dollar terms this year, outperforming Wall Street.  A short-term overbought condition can be seen on the Stochastics Indicator at the upper side of the current range near 3850 is tested.  A clear upward break is required to reaffirm the recovery since late August. 

The Hong Kong HSI (weekly & daily) (p/e 9.69 & yield 3.86%) and the Hang Seng China Enterprises (H-Shares) Index (weekly & daily) (p/e 7.32 & yield 3.99%) according to Bloomberg, show underlying support and further recovery potential towards their declining MAs, at least.