China’s Economy Strengthens, Somewhat

If you remember the stock market plunge from earlier this year, then you probably also remember that it began with problems in China.

With the Chinese economy now clocking in as the world’s second largest, it can truly be said that what happens in China doesn’t stay in China.

Indeed, the Chinese stock market crash that culminated with China’s August 24 “Black Monday” event sent shock waves around the world. It led to steep corrections in stock markets globally, and the U.S. was no exception.

Economists worried over the ability of a weakening Chinese economy to drag down large economies elsewhere. While the U.S. economy seemed strong in 2015, they argued, it could be pulled down by continuing problems in China.

Well, the latest word is that China’s economy is poised to grow in the near future. The Conference Board’s Leading Economic Index for China increased in August, by 1%.

The LEI is a pretty reliable “look ahead” at economic strength, since it aggregates a bunch of factors (such as factory orders and fresh unemployment claims) that usually act as predictors of near-term economic strength, or weakness.

So, it’s a good thing that China’s numbers aren’t plunging.

Andrew Polk, resident economist at The Conference Board China Center in Beijing, does point out that the increase in these readings comes mainly from gains bank loans and better performance in housing starts – and that housing starts are still in contradictory territory.

In recent years China has had a housing boom that makes the U.S. 2001-2007 boom look tiny in comparison. That country is now poised to see the bubble burst. So, while there have been some gains in recent months, the worst may be yet to come.

This bubble bust would not be good news for the U.S., should it come pass.