China's Not In Trouble: We Are

China reported fourth-quarter GDP yesterday — growth of 6.8%. Nobody freaked out; China’s market collapse, long foretold, didn’t happen. Even China-centric commodities shrugged it off, with copper, aluminum, zinc and iron ore moving higher.

Simply put: China, despite all the hand-wringing and consternation in the media, is not a basket-case economy on the verge of implosion. It’s following the early stages of the path I predicted back in August, when China depreciated its currency, the yuan, causing commentators around the world to cry that China’s market collapse was nigh!

Of course, China’s market collapse was never in the cards. And recent data show that. It reaffirms what I’ve been writing for the last six months: There exists a good possibility that China surprises to the upside when the dollar weakens … and when that happens, the negative sentiment that has washed over the world, particularly emerging-market economies, will reverse.

Below the surface — meaning below the headline GDP numbers — China’s economy is mending. Parts of the economy — namely, the consumer — were never hurting.

Here’s what I mean:

Chinese retail sales were up 11% in December, clear indication that the Chinese consumer is just fine.

Real estate, though bubblicious in some markets no doubt, saw sales rise nearly 17% for 2015. And far from racing toward collapse, China’s property sector is stable, says Moody’s, the debt-rating service.

Though still weak, the country’s non-manufacturing index, gauging economic activity beyond the factory floor, is rising. Same with industrial production.

And in the last couple of weeks, China’s manufacturing sector edged higher.

The reason: China devalued the yuan back in August.

This is the early signs of what I said to expect.

Until recently, China had pegged the yuan to the dollar, meaning that as the dollar rose in value against the rest of the world’s currency, so too did the yuan … which meant Chinese goods grew increasingly less competitive globally with every uptick in our buck. Which means that the Chinese economy has loosely followed the dollar. When the dollar weakened, China’s GDP grew at a faster pace; when the dollar strengthened, China’s GDP grew at a slower pace.