5 ETFs to Watch as China Grows

China’s GDP grew 10.3% in 2010, 9.8% in the 4th quarter. China’s economy grew 9.2% in 2009. China likely became the 2nd largest economy in 2010, surpassing Japan. Inflation continues to be a worry with consumer inflation standing at 4.6% and producer inflation standing at 5.9%. Excessive real estate investing (pushing up prices and leading to what many see as overbuilding) also continues to be a worry that is growing.

While China depends on only one nation for 15% or more of its exports (US 17.3%), Bloomberg's Michael McDonough notes that an incredible 35 nations depend of China for at least 15% of the exports; up from just 4 in 2001. Most are emerging markets or major commodity producers with the shift being driven by China's demand for raw materials, fueled by its investment-led growth model and the stimulus package following the global financial crisis.

WASHINGTON — The U.S. economy unexpectedly contracted in the fourth quarter, suffering its first decline since the 2007-09 recession as businesses scaled back on restocking and government spending plunged. Gross domestic product fell at a 0.1% annual rate after growing at a 3.1% clip in the third quarter, the Commerce Department said on Wednesday. That was the worst performance since the second quarter of 2009, when the recession ended, and showed the economy entering the new year with no momentum.

With negative sentiment toward China reaching an extreme in recent months, patient investors have been rewarded with recent news of improving data from the Asian giant.

While Europe’s financial crisis continues India grew GDP by 8.6% in the first 3 months of 2010. China continues to grow quickly as do many emerging countries, including Brazil. India’s Q4 GDP grows at 8.6% y-o-y

The usual concern about the US-China balance of economic and political power is couched in terms of our relative international payments positions.  We’ve run a large current account deficit in recent years (imports above exports); they still have – by some measures – the largest current account surplus (exports above imports) even seen in a major country.  They accumulate foreign assets, i.e., claims on other countries, such as the US.  We issue a great deal of debt that is bought by foreigners, including China.

By John Nyaradi: China and the FTSE China Index ETF (FXI) have been notorious for taking investors on wild rides and the current vector seems to be up. While Europe and Japan have entered confirmed recessions and the United States' economy limps along at stall speed, China and its 2nd largest economy in the world have so far managed to stay on a dramatic growth curve.

China bulls are in for a multi-year shock because rebalancing from an economy overly dependent on exports is going to be far more painful, and last much longer than most think. Data is coming in much weaker than expected, but I propose this is only the very beginning. The New York Times reports Data Signal Economic Trouble in China