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Does China crack global growth?

| Posted by: Paul Donovan | Tags: Paul Donovan Weekly

  • China's economy needs to slow. China has been growing above trend its trend rate for a while. This was achieved by credit. Spending money you do not have is a reliable way of achieving more growth than is sustainable.
  • The Chinese knows the dangers of paying for growth now with debt that must be repaid in the future. Every year the growth rate is a little lower than the previous year. China is also publishing lower growth targets for the future as it tries to get to a more sustainable economic model.
  • China has a relatively high weight in calculating total global GDP. About 15% of the global GDP number is China. Thus, global GDP will slow as China slows. However global GDP is one of the most meaningless numbers ever created.
  • If China's consumption rises faster than GDP (as it has) China may import more from the rest of the world for domestic use. That would allow China to contribute more to growth in other countries, even as its own growth rate slows. Rather than worry about China's growth level, investors should focus on how China is growing. That matters more for other economies and global companies.