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Waiting on the world in China

  • By Alex Frangos,
  • The Wall Street Journal
  • – 02/20/2014
  • Economic Insight
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China optimists are standing on a thin reed of hope.

The latest negative signal came with February's HSBC flash Manufacturing Purchasing Managers' index, which fell to 48.3, indicating contraction. Usual caveats apply about the Lunar New Year holiday messing with economic data. Still, investors sniffing out a hard landing for China sent China-exposed shares and currencies lower.

If there was a sliver of good news in the report, it was that the export-orders component rose slightly, though it remains in negative territory. The forward momentum could lend support to a thesis that China's growth this year will be better than expected thanks to a resurgence in global trade.

RBS economist Louis Kuijs figures China can handle Beijing's engineered slowdown in credit-fueled investment partly through recoveries in export demand from the U.S. and Europe. He estimates China will grow 8.2% this year, above the mid-7% consensus.

The trouble is it will take a much faster rebound in the developed world to give China the same export bang for the buck that it got last decade. Plus, China's rising wages and currency make it less of a no-brainer as a source for manufactured goods.

It also isn't clear that fast growth in the U.S. — this time driven by energy investment and a tech boom rather than, say, building and fitting out new homes — translates into imports at the same intensity.

The export-recovery thesis could pan out. China isn't going to lose its global manufacturing edge so quickly. But it also shows an uncomfortable truth: A few years ago China was resilient enough to grow as the world collapsed around it. Now it needs the world to grow to prevent its own economy from turning sideways.

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Content for this page, unless otherwise indicated with a Fidelity pyramid logo, is published or selected by Fidelity Interactive Content Services LLC ("FICS"), a Fidelity company with main offices in New York, New York. All Web pages that are published by FICS will contain this legend. FICS was established to present users with objective news, information, data and guidance on personal finance topics drawn from a diverse collection of sources including affiliated and non-affiliated financial services publications and FICS-created content. Content selected and published by FICS drawn from affiliated Fidelity companies is labeled as such. FICS selected content is not intended to provide tax, legal, insurance or investment advice and should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by any Fidelity entity or any third-party. Quotes are delayed unless otherwise noted. FICS is owned by FMR LLC and is an affiliate of Fidelity Brokerage Services LLC. Terms of use for Third-Party Content and Research.
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