China the one to watch for our fate A stock investor watches a board displaying stock prices at a brokerage house in Huaibei in central China's Anhui province. AUSTRALIA looked like it was living in parallel universes last week. The share market surged, rising pretty consistently through the week - in sharp contrast to the previous week's crazy volatility - and by the finish, some $40 billion had been added to share values. That good news was in sharp contrast to the news on the economy, which turned increasingly negative. The National Australia Bank's survey of business confidence fell towards the bleak levels reached in the middle of the Global Financial Crisis. And that was when some thought we were headed for Great Depression Mark II. The jobless rate ticked up to 5.7 per cent, the highest in four years and just shy of the peak during the GFC. The actual number of people looking for work kicked above 700,000 - the highest it has been since the dark days of the early 1990s. So is the glass half-full and filling? Or half-empty and emptying? In some respects we are living in parallel universes. Our share market is being - largely - driven by Wall St, which in turn has been driven to an all-time record (we are still 27 per cent below our record high in 2008) by the easy money policy of Fed head Ben Bernanke. While our economy is living with the consequences of the high Aussie dollar - which hurt the non-resources side of the economy - and the now-slowing resources sector as the Chinese economy has started to slow. Arguably the share market is a better guide to the future than (what are mostly yesterday's) statistics about the state of the economy. Traditionally that has usually been the case. The share market turns down before the economy and picks up ahead of it. More simply, the near 15 per cent fall in the dollar in the past few months and the Reserve Bank's interest rate cuts, which have taken rates for business and home-loan borrowers to their lowest in more than half-a-century, need to be given time to work. That's essentially the view inside the RBA. Although it is considering whether another rate cut at its next meeting at the start of August, would be the "no regrets" option. The problem is that we are living through completely unprecedented times. The old linkages don't work like they used to. Two big things are different. First is what the Fed - and the European Central Bank and the Bank of Japan - are all doing. After cutting their official rates to zero or all-but zero, now printing money. This has done two main things. It has sent share prices around the world rocketing up and major currencies down. Except, they can't all go down against each other: the US dollar has tended to go up. And hence our dollar's fall. It was the suggestion by Bernanke that he might start "tapering" the money printing that triggered the volatility of the previous week. Last week he beat a hasty retreat promising the easy money would be around "for years," and the share punters said 'thank you.' The second big difference to yesteryear, especially for us but increasingly also the world, is China. Our economy is totally reliant on China, and critically, still will be, even after the boom itself has ended. It will be still easily be our biggest customer. And not just for iron ore and coal, but supplying tourists and customers for James Packer's casinos. China is now also big enough to matter for the global economy. It has also, obviously, been the one centre of strong growth for all of the past five years. But now the Chinese economy is slowing. No one, certainly not outside China and arguably no one inside China either, really knows by how much. For the first time the Chinese Government has suggested the growth rate could start with a "6." Not the 7-7.5 per cent previously considered the mark of a "soft landing." This combination of easy money force-feeding the global share market and the uncertainty over China must make for an uncertain and still volatile future. As I wrote last week, we are seeing investors right around the world trying to ride the low-rate gravy train, aiming - hoping - to be able to "get off" before it goes over the cliff. It is what happens in Shanghai and Beijing that is really going to determine our fate. Not the paper money games in Washington.