With China’s gross domestic product (GDP) representing nearly 15 percent of the global economy, it is little surprise that markets rise and fall on how China is faring. For nearly two decades now China has been the growth engine of the emerging markets, to the point that the World Bank International Comparison Project forecast this past May that the Chinese economy could surpass the United States to become the world’s largest. That’s an honor that the US has held since it overtook the United Kingdom in 1872.

Despite the important role China plays in the world economy, trying to read the Chinese economic tea leaves is a tricky proposition. For one thing, when an economy grows that large its fortunes become tied to the rest of the world and they can rise and fall depending upon what’s happening on the other side of the ocean. At the same time, just as we say “don’t fight the Fed,” here in the States, in China’s case it is “don’t fight the central committee.” Whenever the Chinese economy seems to be faltering, the government will step in with support measures.

That’s why I’ve been surprised that so many market watchers continue to predict a hard landing for China. Global markets have been rallying over the past few days largely due to the fact that, once again, those calling for a hard landing were wrong.

Most of the economic data coming out of China so far this year has been relatively weak, particularly when it comes to real estate. While June data hasn’t been released yet, homes sales in the first five months of the year fell 10.2 percent year-over-year while construction starts were down 18.6 percent. According to data from the International Monetary Fund, real estate directly accounts for 12 percent of Chinese GDP and indirectly accounts for even more when you consider sales of home furnishings, appliances and other items.

But just as analysts the world over watch Chinese economic data, so does Beijing. The country’s real estate slowdown was largely government engineered, as Beijing took steps to slow credit growth and limit purely speculative real estate development. And just as it can tighten, now it is loosening, pushing banks to ease mortgage terms and cut interest rates, generally loosening credit conditions and embarking on social housing projects of its own. At the same time, the Chinese government cut a number of taxes for small- and mid-sized businesses and launched a raft of infrastructure projects.

As usual, a bet on a hard Chinese landing is probably going to be a losing one – the government just won’t let that happen. As I’ve often said, I would avoid Chinese real estate-related investments at this point, but infrastructure plays should continue to pay off thanks to their simulative effect.

I would pay particular attention to China’s ambitious efforts to develop a high-speed train network across the country in order to be more economic development opportunities to the country’s interior. China currently operates the world’s longest high-speed rail network at more than 6,000 miles.

Last year the government spent about RMB650 billion on rail development, with the goal of investing at least RMB3.3 trillion and building 13,000 miles of new railroad by the end of 2015. It also plans to grant ownership and operating rates on some city and regional connections to local governments and private investors.

A major beneficiary of China’s railway spending program will be CSR Corp (Hong Kong: 1766, OTC: CSRGF), China’s largest train manufacturer in China that has been enjoying growing sales both at home and abroad.

In addition to being the third-largest high-speed train producer in the world, the country’s technology is also used in the manufacture of electric vehicles, marine crankshafts and diesel engines, construction machinery and wind turbines. Its CRH380A high-speed train set a world record in 2010 after reaching 486.1 kilometers per house during a trial run.

The company has been growing steadily over the past three years, with revenue growing an average of 8 percent and earnings typically up between 4 percent and 5 percent. Last year revenue hit RMB96.525 billion and is one track to break RMB100 billion for the first time this year, while profit hit a record RMB5.074 billion.

Growth should continue apace.

Last month the Chinese government announced it will spend RMB327 billion (USD65.6 billion) on at least 14 railway projects this year, totaling about 3,700 kilometers of new track, most of which will be new high-speed passenger lines. At the same time, many of the high speed locomotives in use in the country are decades old and scheduled to be replaced over the next five years to take advantage of more energy efficient technologies.

Buy CSR Corp up to HKD6.50.

Portfolio Updates

Keppel Corp (OTC: KPELY) has announced that it won a $735 million contract from Golar LNG to perform the world’s first conversion of an existing LNG carrier into a Floating Liquefaction Vessel. With global natural gas demand and production skyrocketing, the mobile terminal will allow Golar the flexibility to operate small- and medium-sized projects, primarily in the Asia-Pacific region.

While this order alone isn’t expected to make a meaningful impact on Keppel’s earnings with SGD14.4 billion in orders already on the books, the fact that it is a first-of-its-kind project highlights Keppel’s technological advantage in the ship and rig building industry. If the project is successful though, Golar has already optioned the conversion of two additional ships.

Continue buying Keppel Corp up to 20.