One answer to that question can be found in strength of China’s slowing economy. And one of the best barometers of the slowdown is not the country’s “man-made” GDP figures but rather the price of iron ore, which is an essential ingredient to China’s industrial sectors. And the price of iron ore has been sinking. As Mining.com explains:

Iron ore fell below $90/a ton for only the second time since the financial crisis. The price of iron ore is down 33.7 per cent year-to-date.
On a quarterly basis iron ore hasn’t averaged less than $100 since the height of the global financial crisis, but is now in danger of doing so – the quarterly average now stands at $104.60.
China is responsible for two-thirds of the 1.2 billion tonne seaborne trade and the declines in the price of the steelmaking raw material has been blamed on continued signs of a slowdown in the world’s second largest economy.

Recall that a slowdown in China risks more social disorder, raising the need for a galvanizing force from outside. So as sure as growth slows at home and the government continues on anti-corruption purge that will further dent spending, the PLA cranks things up in the Pacific.

Of course, iron ore is not a fail safe barometer of China’s economic pace. In fact, iron ore in China has also been used as collateral for off-the-books financing, as is copper. The practices from a country as large as China wreak havoc on traditional forecasting for the commodity’s price and demand outlook.

As mining.com notes:

Another complicating factor in the iron ore market is Beijing’s clampdown on unofficial financing activities happening outside state-owned banks, the so-called shadow banking system. The use of commodities – particularly copper and iron – as collateral in trade financing agreements makes up a large portion of the unofficial banking sector.

…Estimates vary wildly but the portion of iron ore and copper stockpiles at the country’s ports tied up in these deals could be as high as 60%.

Which means that the vast amounts of commodities sold to China may not go directly into industrial uses or construction but sit in docks and depots.

What this means is that the pace of China’s economy could actually be much lower than the official 7.7 per cent. Surely, behind the official numbers is uneven growth depending on the sector. And in that climate where employment may soften and hopes of sharing in China’s wealth fade for many of its workers, the need for external enemies rises. So keep an eye on the price of iron ore to see how soft things are getting at home for China to understand how hard their military (and other authorities) may be with neighbors.

The key index to look at is Tianjin Iron Ore 62% fines index.