China isn't the global economy's weak link: the West is

Last Wednesday and Thursday, consecutive releases of Chinese trade and inflation data painted a mixed picture: the former worse than expected, the latter better. Does this point to a domestically driven Chinese recovery or stabilization? Tuesday's upcoming Q3 GDP figures - to include the breakouts for industrial production, fixed asset investment, and retail sales - will go a long way to determining that. As well, Monday's lending figures - total social financing, outstanding loan growth, and money supply growth - will be indicative of credit intensity and how supportive it is of continued fast growth.

Though it's becoming clear that trade volume is one of those alternate metrics which is no longer as reliable a proxy for Chinese GDP as it used to be, China perma-bears like Gordon Chang still cite it as proof that Beijing is fabricating the latter. Of course, they do so while ignoring other favored proxy data that has recently swung into agreement with solid official growth, like perking up electricity usage.

Plus, with official manufacturing PMI for September at a healthy 50.4 (the same as the previous month) and the alternate Caixin Markit private sector-focused PMI likewise in mild expansionary territory (50.1), it's strongly suggestive of a tentative industrial stabilization driven by domestic demand in Q3. And because services and consumption tend to lag industry and investment, that also suggests robust growth in the former during Q4 - again domestically driven.

But China still depends heavily on the global economy of which it is a linchpin: as Xi Jinping highlighted at the BRICS summit, that makes it imperative to Beijing that the damaging uncertainty created by the Western populist backlash against globalization isn't allowed to actually shift gears in reverse.

The West needs a good does of both demand-side and supply-side boosts to kickstart moribund economic engines. Keynes and Friedman can no longer continue to exert such rigid policy gridlock: the rich world needs both fiscal stimulus and tax cuts plus deregulation.

In that regard, perhaps China is belatedly emerging as a strong and not weak link in the global economy, after all: it's already done massive injections of Keynes to stop the economy from simply crashing, even as it's trying to use the extra time it's bought to haltingly introduce Friedman - with Chinese characteristics, of course.

So even though we may well see the yuan hit its declared lower tolerable limit for the remainder of 2016 - 6.8 to the dollar as loosely set by PBOC in the wake of Brexit - already the markets are increasingly of the mind that this is a natural reflection of global weakness, especially in Europe and Japan, and not particular Chinese vulnerability.

That European and Japanese weakness, in turn, is largely a consequence of residual US softness: specifically, of a Fed that's only gradually begun to recognize that this round of "rate normalization" simply can't go the way previous ones have, given the long-term ill effects of the 2008 crisis on longer term productivity, labor participation, and investment levels, which have together rendered the economy more vulnerable to relative illiquidity even from modest interest rate hikes than would otherwise have been the case.

QE and extraordinary monetary policy have played their role, but Janet Yellen herself now sees the possible necessity of a "high-pressure economy" nonetheless - read: a more comprehensive combination of policy measures to get the whole economic system with its constituent interconnected parts firing on all cylinders again.

Sort of like what China's already attempting. But even China will reach a limit of what it can achieve without a robust and broad US and Western economic recovery to ride atop once more - and soon.