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Is China’s Economy Showing Signs of Strength?

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Apr. 3 2018, Updated 9:37 a.m. ET

China’s economic growth

The world’s second-largest economy, China, has shown huge fluctuations in its economic growth in recent years. In 4Q17, China’s economy grew at an annualized rate of 6.8%. In 3Q17, the country’s growth rate was the same at 6.8%.

In the first two quarters of 2017, China’s economy grew at a rate of 6.9%.

As emerging economies are growing at a higher rate compared to previous years, countries such as China, India, Mexico, and Brazil are adding value. Economic growth in China has mainly been driven by stronger improvements in consumer spending, agricultural output, exports, and various reforms undertaken by the Chinese government.

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Although the country’s growth level wasn’t much higher than the market’s expectation in 2017, it was higher in the year than it was in 2016. Because China is a major trading partner of developed nations such as the United States (SPY), Europe (VGK), and Japan (EWJ), the proposed imposition of import tariffs by the United States on Chinese products could hamper the performance of China’s exports.

However, the transformation of the Chinese economy from a manufacturing hub to a consumption-oriented economy is on track. We can identify this transformation in consumer behavior: Chinese consumers are becoming more selective about the products and services they use. Consumer spending is an important component of each country’s GDP.

Major China-tracking (ASHR) ETFs such as the iShares China Large-Cap ETF (FXI) and the Direxion Daily FTSE China Bull 3X ETF (YINN) have risen 21% and 61%, respectively, in the past year. The S&P 500 Index (SPY) has returned 12% in the past year.

In the next part of this series, we’ll analyze the performance of the Russian economy.

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