Talking Numbers

How China's economy is choking on smog

BofA Merrill Lynch: 20% correction coming next year
China's economy is choking on smog

While bad weather may be passing through the United States, another economic superpower is contending with a manmade air problem that won't go away.

Parts of China are grinding to a halt due to a recent bout of smog. Severe, hazardous mists have plaguing the world's most populous country for well over a week. Though a cold front is expected to lift the polluted clouds soon, schools are closed and flights are being canceled.

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According to CNBC contributor Andrew Busch, editor and publisher of The Busch Update, China's smog problem is a direct result of priorities set by its central government.

"China has long taken the road that growth is better over environmental issues," says Busch. Next week's meeting of the annual Central Economic Work Conference in Beijing will decide whether the country will cut its growth target from 7.5% to 7.0%. Bush says that this is meeting will also give a sense of whether any environmental problems will be addressed.

Besides growth targets, the country is also planning a major upheaval for large swaths of the population. "China's trying to move like 250 million people from the rural to the urban over the next 12 to 15 years which will completely exacerbate their smog and health issues," says Busch.

Forced social changes coupled with smog may be a powder keg for the central government. Smog isn't just reducing visibility, but it's also reducing life expectancy, warns Busch. "If you have this continue, it will lead to social instability," says Busch. "That will really kick their economy down the road. That will hurt them badly."

(Read: Australian shares rebound; China data watched)

However, according to Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, Chinese stocks are still a buy based on the charts.

"I'm not a weatherman, I'm a technical analyst," says Ross as he looks at the iShares FTSE China Large-Cap ETF (the FXI). "But, I see a lot to like about this chart. In fact, I'm a big buyer of China here."

To see the three reasons why Ross thinks the FXI is a buy and to see the rest of Busch's fundamental analysis, watch the video above.

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