By MoneyMorning.com.au

From the Australian:

‘China’s industrial production, which measures output at factories, workshops and mines in the world’s second-largest economy, rose 9 per cent year-on-year in July, the government announced today.

‘Retail sales, a key indicator of consumer spending, increased 12.2 per cent in the same month, the National Bureau of Statistics said, while fixed asset investment, a measure of government spending on infrastructure, rose 17 per cent year-on-year in the first seven months.’

While many concentrate on the manufacturing data, in our view the consumer spending data is more important in today’s Chinese economy.

Here’s why…

A technology transition

As you’re probably aware, China’s economy is going through something of a transition.

It’s transitioning from a mainly manufacturing-based economy towards a services economy. That’s the mainstream take on it, anyway.

We agree with that…to a point. However, what the mainstream doesn’t realise is that this isn’t a binary change. In other words, there isn’t a set point at which China will stop being a manufacturing economy to instead be a services economy.

The reality is that it will be both. Plus, it will be something else as well — it will be a technology economy too.

What most people don’t appreciate is that in today’s economy the services sector isn’t just about hairdressers and coffee shops.

It’s about providing services online that people and companies once provided in-person. That’s why technology has become such a key part of the service sector.

A firm can’t suddenly decide to change its business model from face-to-face or over the phone to online without investing a lot of time and money in creating a new system.

It needs the networks, hardware, software, applications, and of course a customer base who is willing to accept receiving a service online rather than in a traditional way.

That’s why it’s wrong to just say that China is moving from a manufacturing economy to a services economy. It’s services and technology.

History is being written

If history tells us anything, it’s that technological advancements tend to result in huge changes of wealth.

You’ve seen that throughout history, whether it’s the Industrial Revolution, the manufacturing and consumer revolution of the 20th century, or the technological revolution over the past 30 years.

What’s happening now is no different.

The rise in China’s retail spending gives you a clear indication that disposable income is rising. This is something emerging markets analyst Ken Wangdong has covered in New Frontier Investor.

In fact, it was one of the reasons behind the current New Frontier Investor stock pick. As Ken wrote in the report:

‘Today the service sector accounts for about 40% of GDP.

‘But the service sector is growing. By 2030 it will account for almost 60% of China’s GDP.

‘This is important because there is a direct relationship between service sector growth and service sector employment. It means service sector employment will account for almost 50% of total employment in China in 2030.

‘That means more people will move from rural areas to the cities over the next 16 years. And that means there will be a bigger demand for firms that can supply the growing service sector.’

When disposable income goes up people tend to spend more on services. They pay others to do things they used to do for themselves. But they also pay for services to give them an improved standard of living.

This is the big undercurrent influencing the market right now. Unfortunately, most people can’t see this. As usual, they’re too busy looking at the irrelevant stuff to see the important stuff.

Get ready. China’s economy is changing fast, and it’s about to have a major impact on the rest of the world’s economy.

Cheers,
Kris+

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The post Watch Out for the Changes in China’s Economy appeared first on Stock Market News, Finance and Investments | Money Morning Australia.

By MoneyMorning.com.au