The vast and heavily populated nation of China has added a new significance to the tiny stickers recognized by consumers across the world which read “Made in China” that are affixed to many of the goods it ships to other nations.  The meaning associated with this familiar terminology will now be linked to China’s newfound dominance as the world’s leading exporter of goods as in 2009 it usurped the title from Germany in 2009 as the world’s leading exporter. 

The rush of goods flowing out of China in the final month of 2009 lead the Asian nation to experience a 17.7% increase in exports from last December, which ironically, was its first amplification of sales abroad in 14 months.  The lack of overseas retailing for this timeframe, which lasted over a year, was a result of the global credit crisis which, in turn, also suppressed the exports of countries to levels nations had not experienced in numerous decades.  

To add further light on the deeply damaging effects the worldwide recession has had on all the economies across the globe, China was still able to become the #1 exporting nation despite the fact that it reported this past Sunday that last year was the first time in 25 years where it incurred a decline in shipments abroad.

Not Made in China? 

Despite China’s success as the new leader of worldwide exports, conversely, the surging nation also had a surprising precipitous rise in imports.  China amassed a gain of 55.9% in shipments to its domain, far greater than the market estimates that predicted a 31.0% gain in imports, a predication which was nearly half of what the reality of the situation brought forth. 

Since China’s leap in imports was far greater than the goods it shipped to other countries and its accomplishment as the number one exporter worldwide, the trade surplus for the flourishing nation actually slipped to $18.4 billion in December from 19.1 billion in November and $39.0 billion back in the final month of 2008. 

The immense growth of the economy of China was led in large part by its own stimulus program, which has been instrumental in achieving large import numbers, where it initiated a 4 trillion yuan ($585.9 billion) stimulus package, coupled with an all-time high in lending by banks, to thrust its economy to an 8.9% year-on-year development rate for Q3 of ’09.  The proactive actions of its government and banks have put the great Asian nation on pace for an even more rapid rate of expansion for 2010.  

The nation is not indicating any withdrawal of its aggressive fiscal policies as its finance minister indicated China will, in fact, continue forth with them to keep the country from pulling back into the worldwide economic slowdown that has hindered nations across the globe since the latter months of 2008.  The minister cautioned that regressions in the current policies too soon could have damaging effects for China’s economy.

What Effects Will China’s Explosive Economy have on the United States Indices and Those of the Rest of World?  

The economy of China’s dynamic growth from both an export and import standpoint is no doubt proving to be a spearhead out of the global recession.  Even with the success the Chinese have had by pulling themselves out of the global financial windfall, thus far, it is important to make known that the nation is still considered by many experts to be an emerging market – and the fastest growing one for that matter. 

To reach the super power status that the U.S. has attained in its relatively short history, it would still take China approximately 16 more years to achieve an economic system as powerful as Americas.  India, in fact, is closer by roughly 6 years than China in reaching an economy akin to that of the U.S.’.  

A primary reason for this is that India relies chiefly on infrastructure to drive its economic system higher versus China’s reliance on exports for its economic expansion.  Decreases in demand from the West would have a detrimental effect on this nation of exports.  However, the rampant growth of China will continue to provide rapid repercussions on both the U.S. marketplaces as well as the other ones that span the globe.    

The great nation of China dethroned the United States’ dominance as the world’s number one automaker in 2009 as its vehicle sales skyrocketed by 46% last year.  Albeit China did surpass the U.S. as the largest manufacturer of automobiles, it did get help from the fall of the auto industry embedded in Detroit, MI where the lack of innovation accompanied by less-than-prudent executives propelled its collapse.  

China did not gain its newfound identity, however, solely on the failure of the demise of the U.S. auto markets to become the pinnacle of the vehicle industry.  Its government reduced the sales tax on automobiles in half, bringing the tax down to 5%, while offering a 5 billion yuan ($732 million) incentive to replace old cars for new ones – a federal action mimicking the U.S.’ Cash for Clunkers initiative. 

Despite the depressed dollar, the nation of China continues to be a leader in financing the debt of the United States.  However, the weak dollar has put America in a position where it will go from being less of an advocate for China to take up the ways of the Western world via means such as the promotion of more economic and political openness.  Due to the economic crisis, the U.S. has had to become a reassuring superpower that has to prove it has maintained its supremacy to support the actuality that the U.S. dollar is still the most stable of all the currencies.  

In fact, President Obama visited China for the first time this past Sunday to promote the U.S.’ refined message to China.  His primary objective was unlike his predecessors that pressed for the Chinese government to become more adherent to Western ways for China’s benefit, but as a reassuring leader that is confident that the U.S. will be able to repay any debt the Chinese will likely purchase to help finance Obama’s massive healthcare reform and other U.S endeavors.  

The massive expansion of China, together with a weak dollar, has led to its increase in the obtainment of various commodities.  This past Monday oil prices propelled above $83 a barrel in the midst of a strong demand by China for the black gold.  Sunday, the Chinese stated that oil imports rose 14% in December as a component of a 56% thrust upward in overall imports last month.  The weaker dollar is an additional attribute to the rise in oil prices as investors our buying commodities as a hedge against inflationary pressures.  

Furthermore, the Chinese are turning ever more increasingly to gold as a safe haven of value despite its indication it will continue to be a leading banker for the United States.  Within the next 10 years, the Chinese are seeking to become the largest holder of gold reserves by increasing its reserves of the hard asset by 10,000 tonnes in ten years.  As of September 2008, the United States held the largest gold reserves with 8,133 tonnes and China was in the fifth position at that time as the largest holder of the yellow metal with 1,054 tonnes in its reserves. 

The new dominance of China within the automotive industry, America’s refined approach as an assurer of debt repayment to the Chinese, and the increased demand for commodities by the surging nation are only three of the impacts China will continue to have on the indices of not only the U.S., but those of the entire world.  In abnormal times, it is extremely important to be very cognizant of the nations that currently have the most influence on the directional moves of the marketplaces. These movements are tending to become more dynamic as traditional schools of thought throughout the world are being readjusted continually as the world continues on its road to recovery from the unprecedented and devastating global recession. 

Additional Rationale on the Impacts of China to the Indices, Daily Trade Recommendations, and the Weekly Sentiment Analysis 

For further information relating to the immediate economic and political events China will have on the major indices of the U.S., including the several other occurrences stemming from China not brought forth within this report, call or e-mail me via my information listed at the conclusion of this report.  Additionally, for daily trade recommendations that are based on the merits within this report and the additional research I have conducted regarding China, to receive my weekly contrarian analysis for the indices, or simply to provide your thoughts in reference to this writing, please feel free to get in touch with me.

Economic Reports 

The weekly economic calendar shown below lists the significant reports that should provide potential forces to move the U.S. indices for next week’s abbreviated trading session.

Week of January 18 to January 22, 2010

                                                                                                                                                                                    (Source: Econoday.com) 

James M. Gangloff, MBA
Senior Research Analyst / Stock Market Indices
Trading & Managed Futures Strategist
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