Good Morning from Europe!

We have devoted much of our attention to China this past week and for good reason. Judging from the price action and news flow, Xi Jinping’s response to the ongoing panic in the Real Estate sector remains uncertain. Meanwhile, the Yuan continues to come under pressure from markets that have sensed the challenging predicament the People’s Bank of China finds itself in.

Since we will cover the events as they unfold these days, I thought it appropriate to take a step back and examine the broader picture of the Chinese economy and relate it to what we see in the West.

As I emphasized during our Q&A session yesterday, the Chinese housing market is currently facing significant challenges. If authorities permit it to decline further, they would essentially be accepting the coming of a severe recession.

The Chinese Economy is a complex beast full of paradoxes and odd disconnections. While the housing market is in a state of complete meltdown-  the industrial production figures remain look better than in the West, though the growth rate is still below the mean:

Chart 1: Industrial Production, China vs US