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China’s stocks rose again last week driving the benchmark index to a fourth monthly advance, after Tsingtao Brewery Co. reported higher profit and copper prices jumped. “With the economy in recovery, we will see a turnaround in corporate earnings,” said Li Jun, a strategist at Central China Securities Holdings Co. in Shanghai. Still, he only expects a pick up in profits in the fourth quarter. The Shanghai Composite Index which tracks the bigger of China’s exchanges rose 7.75, or 0.3%, to 2,475.94. The measure added 4.4% in April, as record new lending and expectation that growth will be revived drove up share prices. The Shanghai Composite has jumped 36% so far in 2009; it is the 2nd best performer among 90 global gauges tracked by Bloomberg. The measure has advanced on optimism a 4 trillion Yuan (US$585B) stimulus package and record new loans will prevent a slump in the world’s 3rd largest economy.

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The Chinese economy is forecast to grow by more than 9 % this year, according to an annual blue paper released by the Chinese Academy of Social Science last week. Despite the huge uncertainty in 2009, China could still achieve a 9% growth as long as it unveils timely and suitable macro-economic control measures to boost domestic demand, said the blue paper. Economic growth slowed to 9 %in the Q-3 from 10.4 %in the first half and 11.9 % in 2008. Economic data for October and November showed further downside risks. Amid rising worries over an economic slump, China unveiled a 4 trillion Yuan (US$581B) stimulus package on Nov. 9 to boost domestic demand. It has also cut the lending rate by 1.08% pts as of Nov. 27, the largest reduction in 11 years and the fourth cut since mid September 2008

The government think tank also said the consumer inflation could be below 5 percent next year. The agency called to tap domestic demand potential and improve foreign trade polices to help exporters through the hard times. It also urged to grasp the opportunity of slumping oil prices to reform the pricing mechanism of energy. China’s producer prices tumbled by the most in almost seven years and inflation cooled to the weakest pace since 2006 as the government struggled to revive growth in the world’s third-biggest economy. Consumer prices rose 1 percent in January from a year earlier, the statistics bureau said today, after gaining 1.2 percent in December. Producer prices fell 3.3 % after a 1.1 % decline. Lunar New Year celebrations last month may have contributed.

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The world’s largest money managers say China’s steepest monthly stock gain in more than a year shows the fastest-growing major economy will avert a recession. The Shanghai Composite Index is the broadest measure of shares traded on the Mainland posted a 9.3% gain in January, the best among the world’s 10 biggest markets. Last year, the index fell 65 percent, the worst since at least 1996, according to data compiled by Bloomberg. Chinese shares rebounded after the central bank lowered interest rates five times since September and the government announced a US$585B stimulus plan. China’s economy is expected to grow near 8% this year even after expanding 6.8% in Y 2008 Q-4, the slowest pace since December 2001. China’s central government is pressuring state owned banks to increase lending as it unveiled the 4 trillion yuan stimulus package, reduced export taxes and agreed to provide support for 10 industries, through tax cuts and subsidies for steel and autos.

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There’s no denying the strength of the Chinese economy now. Last week, it was announced that the size of the Chinese economy has now surpassed one of the biggest economies in the world; Germany.
After China’s revised GDP numbers were released, it became official that China has overtaken Germany as the world’s 3rd largest economy.

For 2007, China’s nominal GDP rate registered 13%, while its GDP totaled 25.73T Yuan. On the other hand, Germany’s 2007 GDP was only $$3.32T.

This is another example of how China’s economic growth is outpacing most countries during these tough economic times.

Countries like Germany have taken a huge hit in the current financial and economic environment. In fact, the weakening demand for Germany’s exports (it’s one of the largest exporters in the world) continues to weigh heavily on the German economy, and that’s a trend I expect to continue throughout 2009.

There are only two economies standing in China’s way from becoming the world’s largest economy, they are the USA and Japan. Do not be surprised to see China charge pas Japan in the next three to four years as Japan is burdened with a deep recession due to its aging population and lack of jobs for younger Japanese workers.

Further, expect to see Germany and Japan’s economies remain soft and slugish in the coming months and years.

China’s economic strength and size are solid reasons why investors are continuing to focus on China now.

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