The week ahead will be watched closely due to US data releases of PPI, CPI, retail sales and business inventories. Also, a number of speeches from Federal Board members will be observed as the markets attempt to gauge the size, scale and makeup of any upcoming easing programs.

China continues to prepare for its 12th five-year plan and while the rest of the world retains an instantly gratifying, short-term spin cycling economic strategy, China focuses on where it wants the country to be in 50 to 100 years.

One needs to look no further than Den Xiaoping's seven guidelines for China to follow to gain further insight into the way Chinese authorities intend to steer their economy.

  1. Observe and analyze developments calmly.
  2. Deal with changes patiently and confidently.
  3. Secure our own position.
  4. Conceal our capabilities and avoid the limelight.
  5. Keep a low profile.
  6. Never become a leader.
  7. Strive for achievements.

These guidelines tell us much about how China intends to quietly leverage the tools and resources they will need to continue moving their population up the value curve out of poverty and into the growing consumer class.

China intends to turn itself into a high tech, innovation driven economy. They know their strengths and weaknesses better than any other nation and they think long-term, not in election cycles. Over time, their goal is to surpass the US, Germany and Japan as the world’s leading innovator and high-end manufacturer.

Their road ahead and path to prosperity depends on being able to continue to move up the value chain.

China's vast store of currency reserves terrifies the US, Japan and Europe.

My view is that it is in China's interests for the US to be the subject of a continued slowdown as they do not want to be competing with the US for increasingly scarce raw materials. Without the US in the market for materials and finished goods, inflation will remain more subdued and, therefore, prices remain flatter than if there was intense competition.

A continued decline in American purchasing power would suit Chinese purposes of domestic stimulation.

Recently, China has switched its purchases of US debt to buying Japanese debt. This has been confusing to many market participants, but the reasoning is simple.

As the Chinese buy more Japanese debt, this puts upward pressure on the Yen, therefore making it tougher for the Japanese to compete in the export markets.

Last week, China also announced with great fanfare that they would be supportive of the current situation in Greece. Standing next to Greek politicians and smiling, they announced they would be buying Greek debt.

The Greeks should remember the saying "beware of Greeks bearing gifts" and apply this in reverse.

 

Any purchases of EU Bonds will also push up the Euro and diminish Germany's competitiveness.

China's private rationale for all of this is that it needs to see continued tepid activity in the developed world in order to improve its domestic quality of life, rather than see higher inflation and soaring costs of raw materials and commodities.

While the Americans continue to rattle the sabre and protest to all who will listen that China needs the US more than the US needs China, perhaps every member of Congress should read Deng Xiaoping's seven guidelines before they pass too many more new laws.

Remember it is in China's interests for the rest of the world to slow down so as not to derail their ambition of moving hundred of millions of their own people out of poverty.

So many in the West just don't get it yet and by the time they do, it will again be past the tipping point.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.