Why China's Driving the Dow's Gains Today

The Dow Jones Industrial Average (INDEX: ^DJI) is alive and kicking today. As of this midday writing, it's up 0.83% despite Citimissing earnings expectations and opining that Europe "remained a dark cloud" during its earnings call.

Since turmoil in Europe has been driving the market for months, it might shock investors the Dow is trading up sharply on the first trading day after S&P downgraded the credit ratings of nine European countries. However, today's rise is another time to reflect on the continuing ascent of China's global importance.

The country reported GDP growth of 8.9% last quarter, which is a decrease from the 9.7% growth rate from last year, but it still beat estimates. To put that in perspective: most developed countries have seen their GDPs slide backward in recent years.

How important is China to the global economy? Just take a look at this chart we've compiled. It shows the amount of time it takes China's economy to grow enough to "create" economies the size of other countries. As Goldman Sachs' Jim O'Neil put it, "China creates a new Greek economy every four months."


Source: IMF. All GDP levels at purchasing power. Includes author assumptions for growth rates going forward set at 8% to 9%.

Ensuring that China continues rapidly growing while America and Europe tread water is extremely important for the American companies that make up the Dow.

Within the next four years, McDonald's (NYS: MCD) has plans to open a new store in China on a daily basis, and has grown profits in its Asia-Pacific region by nearly 250% over the past five years! Intel (NAS: INTC) takes pains to call out strength in China and other emerging markets as its key growth driver in recent years. China recently became the world's No. 1 PC market, while the United States has seen PC growth fall. Increasingly, Intel's fate is intertwined with growth in China. The list of Dow companies relying on China for growth goes on and on...

So while Europe might hog the economic spotlight, investors are wise to be just as aware about China's growth and how it drives their investments.

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At the time thisarticle was published Eric Bleeker owns shares of no companies listed above. The Motley Fool owns shares of Intel.Motley Fool newsletter serviceshave recommended buying shares of Intel and McDonald's, as well as creating a bull call spread position in Intel. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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