Why China's big meeting will matter for US markets

The Chinese National Congress is set to meet in mid-October, and some predict the session will have wide-reaching implications for global markets and the economy.

Discussions around the growth of the country's debt in recent years will be particularly consequential, said Chad Morganlander, portfolio manager at Washington Crossing Advisors.

"One critical thing to watch is how they rebalance their economy. Over the course of the last five years, you've actually seen nonfinancial debt in China increase by roughly $14 trillion, which is pretty close to 90 to 100 percent growth. That growth rate is not sustainable," Morganlander said Monday on CNBC's "Trading Nation."

This apparent mountain of debt has created "financial fragility" across China, he said, and the country's Communist party would like to "decelerate" that growth rate.

"Unfortunately, that rebalancing does have major implications on U.S. markets and foreign markets," he said, given the massive amount of goods consumed and produced in the country and the many international markets it touches.

On Monday, China began scaling back measures that support the Chinese yuan following its rally this year against the U.S. dollar and other rival currencies.

The country's accrued debt has been discussed by closely followed hedge-fund manager Kyle Bass.

Bass, founder and chief investment officer at Hayman Capital Management, has expressed a bearish view of China and has been vocal about the country's mounting debt.

"They're doing things to try to tweak their trade relationship with the U.S., but more importantly, their newfound strength globally, both economically and as you see militarily in the South China Sea, is all based on their belief in their economic strength," Bass said in June on CNBC's "Squawk Box."

He added: "All that is built upon a massive credit expansion that they're going to have to come up" against.

Furthermore, the relationship between the U.S. and China has become increasingly fraught as the Trump administration earlier this year placed a sanction against a Chinese firm and two Chinese citizens with ties to North Korea, he said.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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