Don't get too disheartened about the Chinese gross domestic product (GDP) figures from yesterday that showed that China's growth was the weakest in nearly three decades.
Output from China's commodity producers like their steel mills are going gangbusters and setting new records, according to Bloomberg.
That's got to be good news for the Rio Tinto Limited (ASX: RIO) share price, the BHP Group Ltd (ASX: BHP) share price and Fortescue Metals Group Limited (ASX: FMG) share price given that our iron ore majors sell just about all their output to the Chinese.
Record output amid slowing growth
Chinese production of a wide range of commodities from crude steel to coal and aluminium hit record levels in June.
Talk about conflicting signals – the strong industrial output clashes with slowing growth as China's economy expanded by just 6.2% in the June quarter, the lowest since 1992 and down from 6.4% in the previous quarter.
Its trade war with the United States is primarily to blame and most economists aren't expecting Chinese GDP to rebound anytime soon. In fact, consensus is forecasting growth to slow to 6% for 2020.
But the surge in industrial output is a sign that the Chinese government's efforts to stabilise the economy is working and some China bulls believe we might even see some pick-up in growth in the second half of this calendar year.
It's all about commodities
What's more significant for ASX investors is that the bright spots in the Chinese economy are commodity dependent. This includes infrastructure spending, manufacturing investment and improving sales of automobiles and property.
Crude steel production jumped 10% last month from the same time last year with the average daily production hitting a record. At this run-rate, China will produce more than a billion tonnes of steel a year.
Coal output also increased by a similar amount while oil refineries and aluminium smelters are running at record average daily production rates, according to Bloomberg.
The market isn't factoring in any good economic news from China, and if the Asian giant can sustain its industrial output, we could see the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index break new record highs before the year is out.
Of course, this assumes the profit reporting season doesn't turn out to be a shocker and we don't get any black swans waddling across our path.
