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Thursday, October 18, 2012

China's GDP Continues to Decline

Data released on Wednesday shows a continued decline in China's GDP, which began in April 2010, as shown on the graph below. There were only two quarters with lower GDP numbers since January 2009.

In addition, the Fixed Asset InvestmentIndustrial Production, and Retail Sales data (also released yesterday) showed a small improvement. The numbers, however, remain subdued at 2009 levels. Fixed Asset Investment in 2012 has been the lowest since 2005. Since it's a "leading indicator of economic health and changes in private and public investment levels can be an early signal of future economic activity such as hiring, spending, and earnings," this low level, combined with a still-declining GDP, does not signal a growing economy.

As can be seen from the Daily chart below of the Shanghai Index, price has rallied slightly, but faces resistance at the 2150 level. Not shown on this chart is today's close at 2131.69. So far, this is only indicating a rally and not a bottom yet. Price will have to break and hold above 2150, and we'll have to see a turn-around in declining GDP and continued improving data to be supportive of any such scenario.