The real reason China's growing at just 4 percent

Earlier this year, legendary bond king Bill Gross remarked that the world will soon realize that China isn't growing at 6+ percent. In one sense, he's dead on: taking into account the sliding yuan, China's GDP is rising at only 3.9 percent year-on-year in US dollar terms, far below the reported 6.7 percent in local currency terms.

Worse, should the yuan slide to just 6.75 per dollar by year-end, that brings dollar GDP growth down to barely 2.6 percent for 2016; should it hit Beijing's stated floor of 6.8 for the rest of the year, it'd be a paltry 1.9 percent. Unfortunately for American investors, such a subpar figure is likely for 2017 and part of 2018 as well, as the yuan is likely to continue a gentle depreciation into the low 7's to support Beijing's desired "L-shaped" recovery. Things can't look much better for European investors, either: the Chinese central bank clearly wants to devalue against the euro, pound, and other western European currencies as well, inasmuch as it can get away with it in the uncertain post-Brexit environment.

So 3 to 4 percent growth is presently more accurate for China, or just half the headline-reported 6 to 7 percent. And that's assuming a relatively firm yuan going forward. It's no wonder that the impressive official GDP figure coming from Beijing doesn't square with Western investor sentiment. And it also explains why the contrast now is so great from 2011-13, when the yuan appreciated 12 percent against the greenback: in those years, China's high-single-digit GDP growth was amplified to as much as 13-14 percent in dollar terms.

On the bright side, by the dollar-converted GDP metric, it's probable that China's already hit rock-bottom last year: 2015 year-on-year GDP in dollar terms was a catastrophic 1.6 percent. Considering that the 2014 figure was about 4.7 percent whereas 2013 was still double digits, we see that the Chinese economy unmistakably slammed the ground over 2013-15, as far as international investors (and thus commentators) are concerned.

With all that being said, considering the dramatic tightening of global dollar liquidity which began in 2013-14 with the Fed's winding down of quantitative easing (QE), no other outcome was possible for China, and in fact the nation's fared far better than other emerging markets, especially commodity exporters, who have over the course of the last three-plus years seen large dollar-denominated GDP contractions, in some cases two or even three such waves.