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In fairly clear evidence of China’s economic ‘restructuring,’ we’ve seen a pattern emerge where manufacturing activity continues to show softness while the services sector becomes more robust. Many fret over the decline in manufacturing activity in China without looking at the other side. Recent data shows the services sector expanded again in April, though at a slower pace—from 52.2 to 51.8. New business has grown at a faster pace since the beginning of the year. Meanwhile, manufacturing garners more attention, and fears were renewed when activity fell for the 14th consecutive month—from 49.7 in March to 49.4 in April. On balance, the economy should find a comfortable medium as this ‘restructuring’ occurs.

FREE Download – Zacks Economic Outlook: May, 2016

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In the past couple of years, China’s slowing growth has sold numerous headlines, but another less told story is that of the mounting debt the country is taking on to fight the “hard landing.” By some estimates, China’s total debt is estimated to stand at some $28 trillion, which means it’s nearly quadrupled over the last five to six years. You don’t have to be an economist to see that as an ‘alarming rate.’ Nevertheless, with the state owning large portions of the debt and a debt to GDP ratio just under 300%, it’s actually quite manageable and could be eradicated if China decides to shrink the balance sheet. That’s not likely to happen anytime soon, as the growing debt has been part of China’s effort to keep the economy stimulated. This story is something to keep an eye on, but in our view it still doesn’t warrant sounding the alarm. 

FREE Download – Zacks Economic Outlook: May, 2016

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.