China: The One Global Market with Gains Behind the Gloom 17 comments
Keith Fitz-Gerald
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It’s easy to be gloomy when it comes to the financial markets.
It’s even easier to write off China.
After all, the Red Dragon’s markets have collapsed by 70%, businesses are shutting down, lead-laced toys and poisoned medicines have tainted the minds of Western consumers, there’s a growing gap between the rich and the poor, inflationary clouds seem to be gathering, and verbuilding is a growing concern.
And that’s just a partial list.
The situation has gotten bad enough that China’s economic growth rate may slow from 9.6% this year to 7.75% in 2009. For those who are struggling to find the “next” profit opportunity at a time when the U.S. economy is straining to maintain any bit of forward momentum possible, those statistics should serve as a gigantic neon arrow over a lighted sign that reads: “Invest Here.”
Simply and succinctly put: U.S. investors are unlikely to ever see this kind of growth here at home ever again.
On the other hand, China is much like America was at the dawn of the Industrial Revolution. Sure, there are problems – and, admittedly, it’s easy to focus on a whole slew of them right now – but there’s still all kinds of potential, too.
If you’ve ever been to China, you know exactly what I’m talking about. You literally can feel the broad sense that the best is yet to come. Contrast that with the United States or Western Europe, where hand wringing, and finger pointing are the norm.
Why is that?
Because, as I mentioned a few weeks back, Beijing “gets it.” And China’s central government is taking major, decisive steps to ensure that China’s people do, too, an admirable example of the kind of leadership that Washington’s self-absorbed politicians seem no longer capable of delivering. Most recently, as Money Morning reported, Beijing approved a $586 billion stimulus package. In an era of trillion-dollar bailouts, that was almost too small to register on the old Richter scale here in America. But it should have.
If America were to put in place a stimulus plan that represented the same proportionate outlay that Beijing’s will for China, we’d be talking about an infusion of nearly $1.83 trillion, or 10.89 times more than the positively puny $168 billion stimulus that went into the hands of U.S. taxpayers last year. And it would probably dwarf anything that President-elect Barack Obama is contemplating right now.
Think of the pile-driver-like effect a stimulus of that size would have on U.S. consumer spending – which, after all, accounts for 70% of what the American economy does. Billions of dollars in loans could be paid off and consumer debt retired. In that sense, such a massive capital infusion could do what U.S. Federal Reserve Chairman Ben S. Bernanke and his Bailout Boys can’t achieve. The Beijing-like infusion would provide a needed recapitalization of the financial markets – without rewarding those who got us into this mess in the first place. Most important of all, it would help the folks who are caught in the middle – us consumers.
What makes this particularly ironic is that the nature and composition of China’s stimulus program suggests that Beijing’s communist government understands consumer psychology and capitalist financial markets better than Western governments do right now – particularly the psychology.
For example, because of the credit crisis and relentless coverage of the flagging economy, consumers are scared stiff at the moment. And understandably so. They see factory orders declining and jobless claims spiking to their highest levels in 25 years. They read the news that retail stalwart Wal-Mart Stores Inc. (WMT)is lowering expectations. So consumers opt to hoard money out of fear, rather than spend it, and that’s what really kicks a recession into gear.
So what will China’s stimulus package do that ours won’t?
For starters, Beijing’s stimulus is designed to encourage spending, rather than reward malfeasance, as our bailout plan is doing. Further, there’s no buying up of bad debt. Instead, there’s an implied recapitalization that will take place through growth. But most importantly, Beijing is sending an ultra-clear message to its people – we will be here for you and we will help you directly – and that’s stoked the confidence in every Chinese contact I’ve talked to since the plan was announced.
And that uptick in confidence is warranted, given all that China is planning, including:
- Improved environmental-protection projects, including new sewage and waste treatment projects.
- More low-rent and affordable-housing projects.
- Distributed healthcare projects, including hospitals, clinics and medical equipment, particularly in the historically ignored rural regions.
- New highways that will more than double China’s navigable area and that will account for nearly 40 million new jobs in the next 24 months.
- New railways and railway-related projects, which will create 6 million jobs during 2009 alone and more after that.
Beijing’s stimulus is geared toward creating 3.0% to 5.0% gross domestic product (GDP) growth to augment the 3.0% domestic-consumption activity, for a total 2009 target growth rate of at least 7.0%.
While China’s stimulus is designed to create valuable growth, the U.S. package is simply concerned with plugging leaks. China’s package is forward-looking, while ours is not.
Clearly though, the effects won’t be immediate and Beijing knows that. And that’s why, based on historical trends, we expect it to be about six months before the money really begins to work its way through the system. Look for an uptick in Chinese demand in late 2009, and acceleration in 2010.
Look, also, for the worldwide ripple effects, particularly for commodities producers and exporters that do business with China, and the infrastructure providers. This package will stop many of these sector skids, and we can look to see them rebound in earnest once demand kicks in and the Renminbi (yuan) start to flow.
Let’s hope that the rest of the world gets the message. Washington’s current bailout plan isn’t large enough to restart the global markets and it sure as heck isn’t large enough to recharge investor psychology.
But China’s plan is. And that’s what Washington should be looking at.
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This article has 17 comments:
Do you rally want to quote 'growth' statistics coming out of Beijing?
Beijing presented 'growth' rates of 9% +/- tenths of a percent for about twenty three straight quarters [hyperbole, yes]. EX: Q1 9%, Q2 9.1%, Q3 8.9%, Q4 9%, Q1 9.1%.
Clearly, this is an impossibility. I would argue that the numbers have been massaged.
I am FAR from a conspiracy theorist.
Now is their first biggest chance to plunge headlong into infrastructure projects while commodity prices are reasonably cheap and buying competition from the West will be almost non-existing for the next several years thereby preventing commodity prices from running up dramatically.
Also, if they don't spend their $1.9T cash reserve; US and Europe are going to borrow every cent of that money and will be asking for more.
However, if they dont help US and Europe in any meaningful way, the West might start legislating trade barriers against China and other developing countries specially now that the West is starting to realize that investing in housing instead of in business during the 2001-2006 years was a dumb idea to shore up their economies against the Tech meltdown.
Most investment in manufacturing and technology from 2002-2007 went to China and India. The West will have to start looking inward in order to prevent more capital investment outflow to those countries. A tough situation while the US is in a quagmire while companies such as MSFT and Intel are even considering ramping up investments in China and India.
The reason is simple. China and India constitutes the biggest baby boomers of the 21st Century. Developing countries' baby boomers dwarf the West's baby boomers by the billions. More so, they are basically "hungry" of anything western since they were practically "brainwashed" by western movies and TV shows during their childhood and early adolescent in the 80's, 90's up to now. The next global boom will be fueled by consumerism in the developing countries - not the West.
US baby boomers in their 50's and 60's are more interested in banking, finance, insurance and housing rather than technology, manufacturing or even sales and marketing. What do you expect when you reach that age? Just consider the current financial crises as their post mid-life crises.
They will go thru it and plunge headlong after acquiring a considerable knowledge and experience this time. Also, more of them will be controlling the US govt in the future - global banking and financial services is going to be the future of the US economy in the next 20 to 30 years.
Meanwhile, China economy will still suffer in the short run and their stock market will still be beholden to the US and Europe market gyrations.
"Beijing approved a $586 billion stimulus package. In an era of trillion-dollar bailouts, that was almost too small to register on the old Richter scale here in America. But it should have."
This article is good news. I hope he's right.
jimrogers-investments....
Some analysts believe that dollar for dollar, the Chinese spent about 1/50th of our NASA total cumulative budget to launch their Space Program to where it stands today.
Historians and economists also generally believe that during the Great Depression yeas 1929-1939. the Soviets under Lenin in due diligence successfully built up their industrial power base, exploiting the West weaknesses.
Would history repeat itself in the potential Great Depression II decade of 2010-2020?
The UAW won't allow GM to fire anyone also.
What do say about that ?
And just where would we get an equal amount of money to spread around as a stimulus package? Print more? Nice solution.
You have to have money before you spend it, unless of course you are a Republican. The rich get richer and the poor get poorer.
Silly article.
"We’re in the midst of the greatest investing boom in almost 60 years. And rest assured - this boom is not about to end anytime soon.
You see, the “flattening of the world” continues to spawn new markets worth trillions of dollars; new customers that measure in the billions; an insatiable global demand for basic resources that’s growing exponentially ; and a technological revolution even in the most distant markets on the planet.
And Money Morning is here to help investors profit handsomely on this seismic shift in the global economy. In fact, we believe this is where the only real fortunes will be made in the months and years to come.
The bottom line is this: With U.S. influence slipping, and the dollar declining as well, investors who think too narrowly about this transformation will face years of meager returns. But those who embrace this new global reality can make themselves very wealthy."
...pardon me if I think you're as full of s__t as a Christmas turkey.
Now, my optimism (and why I own shares) comes more from my trust in the work ethic and money-hunger of the Chinese. It took Communism to keep the Chinese down, but move out of their way and they'll start making money! I live in Singapore and see it all around me. Same thing in the region (Indonesia, Thailand, Malaysia), the Chinese minorities are the entrepreneurial backbone. As a European living in Singapore and traveling a lot through Asia, sometimes I roll my eyes at the Chinese culture -- the three things that stand out the most are money-worship, one-upmanship (face), and ethnic nationalism -- but yeah, now that these guys have got a taste of capitalism, in the long run they'll figure out a way to grow their economy.
Moreover, I wonder if some of the fears about exports falling off a cliff are a bit overdone already. Sure, I wouldn't want to invest in any Chinese industry with no competitive moat at the moment (e.g., textiles or toys), but companies like Mindray (medical equipment) -- I don't see why their exports should suffer that much, on the contrary, since they're the cost-leader.
On Nov 23 10:19 AM raytayzmd wrote:
> ...hmmmm -- this is from the "about us" page of your website:
>
>
> "We’re in the midst of the greatest investing boom in almost 60 years.
> And rest assured - this boom is not about to end anytime soon.
>
>
> You see, the “flattening of the world” continues to spawn new markets
> worth trillions of dollars; new customers that measure in the billions;
> an insatiable global demand for basic resources that’s growing exponentially
> ; and a technological revolution even in the most distant markets
> on the planet.
>
> And Money Morning is here to help investors profit handsomely on
> this seismic shift in the global economy. In fact, we believe this
> is where the only real fortunes will be made in the months and years
> to come.
>
> The bottom line is this: With U.S. influence slipping, and the dollar
> declining as well, investors who think too narrowly about this transformation
> will face years of meager returns. But those who embrace this new
> global reality can make themselves very wealthy."
>
> ...pardon me if I think you're as full of s__t as a Christmas turkey.
>
>
The Chinese had had no democratic traditions in their culture and history, and are, by and large, a Godless culture. (Buda was not a God; he died and was not resurrected). But ironically perhaps, being Godless make them a "great" nation.
I am more pessimistic about the past relationship between the United States and China. Some sixty years after the Chinese Civil War between the Nationalist and the Communist of 1947-1949, we America are still involved in that Civil War. Come to think about this situation is quite odd historically speaking. Historians generally attributed the continuing skirmishes and hostilities between the U.S. and Great Britain to lingering from 1800 to around 1880 -- some eighty years. The War of 1812 was a partly direct result of America's failed attempt to annex Canada. Perhaps it would take longer for this time around. Generally I am pessimistic but the future is unknown.
On Nov 23 10:38 AM sundrenched wrote:
> I hope you're right since I'm long quite a few Chinese stocks but
> in the short run (maybe more than 5 years) it will be a rough ride.
> The projects that you mention are all capital investment related,
> but increasing private consumption will be the hard part. Even the
> Japanese, with a 2-generation headstart, are still tight-wallets
> when it comes to personal consumption. With little or no social
> safety net, fresh memory of poverty, and the bottom falling out of
> the export economy, good luck getting the Chinese consumer to take
> over where the American ones left off.
>
> Now, my optimism (and why I own shares) comes more from my trust
> in the work ethic and money-hunger of the Chinese. It took Communism
> to keep the Chinese down, but move out of their way and they'll start
> making money! I live in Singapore and see it all around me. Same
> thing in the region (Indonesia, Thailand, Malaysia), the Chinese
> minorities are the entrepreneurial backbone. As a European living
> in Singapore and traveling a lot through Asia, sometimes I roll my
> eyes at the Chinese culture -- the three things that stand out the
> most are money-worship, one-upmanship (face), and ethnic nationalism
> -- but yeah, now that these guys have got a taste of capitalism,
> in the long run they'll figure out a way to grow their economy.<br/>
>
> Moreover, I wonder if some of the fears about exports falling off
> a cliff are a bit overdone already. Sure, I wouldn't want to invest
> in any Chinese industry with no competitive moat at the moment (e.g.,
> textiles or toys), but companies like Mindray (medical equipment)
> -- I don't see why their exports should suffer that much, on the
> contrary, since they're the cost-leader.
<< Did you not read the news before writing this article? Obama, 2.5 million jobs, road, schools, infrastructure. Hello? >>
Proposing the creation of 2.5 million jobs, etc. and successfully putting these ideas into play are two very different things...
China has no debts and enough cash to buy the USA.
Even if China has fewer customers for export, the extra cash can be used to create jobs and consume goods inside the country as the Chinese need infrastructure and lodgings
On Nov 23 07:58 PM mwswi wrote:
> brooklynbl,
>
> << Did you not read the news before writing this article? Obama,
> 2.5 million jobs, road, schools, infrastructure. Hello? >>
>
> Proposing the creation of 2.5 million jobs, etc. and successfully
> putting these ideas into play are two very different things...