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The Middle Kingdom Attempts to Tread the Middle Ground

Posted by WorldWideMarkets . on Jul 18, 2013 3:42:00 AM

China trading 
China's Premier Li Keqiang seems in a quandary, signaling the government is ready to act to stop growth slowing too far but urging caution when taking the steps to change the economy. China is attempting to keep growth on a sustained path with rising domestic consumption and low unemployment while moving the economy away from basic production to manufacturing of higher end  technology goods.

It’s a tricky task at the best of times. But when growth is at 7.5 percent, as seen from this week’s Q2 reading, it may be even more difficult, even if most of the world would consider it an enviable position.

China has had spectacular growth because of a reliance on exports. That kept its factories humming but it was always going to create its own problems. To move in the direction China wants to go, there are going to be some hiccups. Will unemployment rise? Will factory activity slow as they retool? 

The best guess is that Chinese authorities are going to keep society stable so if they have to move some goals further away to keep the population happy near term, they will do it. That should put a floor under the commodity bloc currencies but it will be a shifting floor as China itself keeps changing its near-term priorities. Sidepoint: in the BofA Merrill Lynch July fund manager survey, a China hard landing and commodity collapse was regarded as the current biggest "tail risk".

 

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