Is China Losing Control Of Its Economy?

 |  Includes: SCCO
by: Shaun Connell

I don't believe central planning works. It always breaks something over time and the free market trumps it easily. Still, some government policies can create at least temporary bubbles that can smooth out corrections.

This is what China is trying to do. And it looks like they're struggling even more than they're letting on.

For example, China's banks might miss their loan targets from this point on in 2012. This means that credit is either drying up or expanding less than the Chinese government officially planned.

Just yesterday, China's cabinet promised to fight the continued slowdown, apparently because the economy is slowing to the point of scaring the cabinet.

If things escalate to an actual recession at any point in the next year, that's horrible news for literally billions of people considering how important China's growth is to the world economy, especially considering how fragile almost all continental markets are right now.

With the few fringe exceptions, almost everyone still predicts strong growth overall for the Chinese economy compared with last year, with even the World Bank forecasting 8.2% growth.

Still, as the NY Times reported Diana Choyleva from Lombard Street Research as saying:

Clearly the economy is much, much weaker than most people thought until recently. They have a real mess on their hands.

We can't tell for certain what's going to happen to China over the next 12-24 months. Still, it looks like the economy is slowing far more than the official forecasts of most economists, which could put a huge, huge downward pressure on companies that get most growth and/or profit from Chinese-based growth, like Southern Copper (NYSE:SCCO). I've talked about that before in my recent article on copper prices.

The Chinese economy is one of the most important factors in the world economy right now -- if it goes from slower growth to an all out recession, it could batter trillions of dollars worth of assets.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.