Chinese GDP Slows in Second Quarter, Lowest Growth Rate in 3 Years

Chinese GDP growth slowed to the lowest level in three years in the second quarter. China's National Bureau of Statistics reported that the economy grew at a 7.6 percent annualized rate in the second quarter, slower than the growth rate in the first quarter of 8.1 percent.

Chinese GDP reflects the weak data seen earlier this week. China reported that trade balances fell in June, showing that the global economy is continuing to slow. The GDP data furthers the bearish China thesis, as GDP growth is now only 1.3 percent above the lowest levels of 2008, when GDP growth was a mere 6.2 percent in the first quarter of 2009.

Also released was Chinese industrial production data which showed that the manufacturing sector, China's largest, continued to slow in the second quarter. China reported that industrial production grew 9.5 percent in June as compared to a year ago missing economist estimates of a 9.8 percent rise. This was also a slower pace of growth than May's reported 9.6 percent.

A continued slowdown in China's economy does not bode well for global growth. As the chart below shows, Chinese GDP growth tends to lead U.S. and German GDP growth. German GDP growth is a proxy for the Eurozone as a whole, which is the world's largest economy and China's largest trading partner. Now that China, the world's third largest economy, is slowing, it probably will lead to further slowdowns in other large economies.

Industrial and manufacturing companies in the U.S. would see a slowdown in orders, and any slowdown should be reflected in the SPDR Industrials ETF XLI. Also, materials stocks should weaken as Chinese demand for commodities slows, which can be seen in the SPDR Basic Materials ETF XLB. Also, the dollar tends to rally in risk-off environments and could do so once again. Investors could buy the Powershares Bullish dollar ETF to express this thesis UUP.