Exports from the Chinese economy increased 14.7% in April. This was a surprise, because analyst consensus estimates were expecting an increase of only 10.3%. The China General Administration of Customs reported the country had a surplus of $15.1 billion in April—it exported more than it imported. (Source: Reuters, May 8, 2013.)

This is a good sign for the Chinese economy; but the threats of an economic slowdown in the country still persist.

Looking closely at the data, exports from the Chinese economy to the U.S. fell 0.1% in April; and to the European Union, Chinese exports declined 6.4%. The economic slowdown in Europe is still a major issue and exports to the region will likely decline even further.

It is way too early to say the Chinese economy is coming back.

In the first quarter of 2013, the gross domestic product (GDP) in the Chinese economy only grew at an annual rate of 7.7%, compared to 7.9% growth in the last quarter of 2012. While this number looks great when measured against the growth in developed nations in the global economy, it’s nowhere close to the growth rate the Chinese economy has experienced in the past.

According to Fitch Ratings, a credit rating agency, credit in the Chinese economy reached 198% relative to the country’s GDP at the end of 2012. In 2008, this number was only 125% of the GDP. (Source: Time, April 28, 2013.)

Similarly, the debts of local governments in the country are stacking higher, estimated to be $2.0 trillion, or about 25% of GDP. The Chinese economy may very well be faced with a financial crisis due to significant credit expansion in a very short period of time.

Dear reader, one good number doesn’t really mean economic conditions have changed.

I am watching developments in the Chinese economy very closely, because it can impact an already struggling global economy. As news of an economic slowdown in China has surfaced, industrial metals and other commodities have fallen in price, as the Chinese economy used to be a major consumer of these commodities. This will have an impact on U.S.-based companies that are involved in those sectors.

What He Said:

“There is no mixed signal about this: Foreclosures in the U.S. will continue to rise, the real estate market will get weaker, and the U.S. economy will get weaker. Smart investors should seriously consider unloading their stocks of consumer-products companies that produce nonessential goods.” Michael Lombardi in Profit Confidential, March 12, 2007. According to the Dow Jones Retail Index, retail stocks fell 42% from the spring of 2007 through November 2008.