3 Ways to Tap into China's Central and Western Regions

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 |  Includes: CAHS-OLD, LLEN, ZSTN
by: China OTC Player

In a Global Times article published this week, a major shift seems to have occurred. While the coastal regions of China have been the engine of the country's growth for the past couple of decades, it now appears that China's central and western regions are taking the lead in fueling economic expansion.

For instance, Anhui Province's GDP grew by 12.9% in 2009 Y-O-Y, representing the sixth year of consecutive double-digit growth. Hubei Province was up 13.2% Y-O-Y, while Inner Mongolia achieved a 19% growth rate Y-O-Y, giving it the title of the fastest growing region in China.

Additionally, investments in these central and western regions are still very strong. Hubei and Ahnhui registered fixed asset investment growth rate of 40% and 36% respectively, as compared to, say 20% in Guangdong Province. This is the reason, according to experts, that "the economic growth in the eastern areas will slow down, while the high growth speed in the hinterland will be maintained".

Given this, what are some of the emerging Chinese companies that could help us tap into this growth? I present three prime examples, as follows:

1) China HGS Real Estate (OTC:CAHS-OLD). Based in Sha'anxi Province in western China (provincial growth rate of 13% in 2009), this is a great regional play. CAHS specializes in real estate development in China's second-tier and third-tier cities and is the #1 developer in Hanzhong City, located in the southwestern part of Sha'anxi. With the company's uplisting prospect onto a major exchange, this is a company to watch.

2) L&L Energy (NASDAQ:LLEN). Based in Yunnan Province, this company operates coal mines, coking, and coal-washing facilities and participates in the economic growth story of Yunnan as well as neighboring Guizhou Province. These provinces are located in southwestern China and will additionally benefit from the recent China-ASEAN Free Trade Agreement. Yunnan borders Vietnam, Laos and Myanmar, all members of ASEAN (Association of South East Asian Nations).

3) ZST Digital Networks (OTCPK:ZSTN). Based in Henan in central China (provincial growth rate of 10.5% in 2009, 11.5% expected for 2010), this company supplies digital and optical network equipment and provides installation services to cable system operators. ZSTN has assisted in the installation and construction of over 400 local cable networks in more than 90 municipal districts, counties, townships, and enterprises. Additionally, the company is expanding quickly into the provision of GPS-based services. This is still one of my favorite Chinese stocks and a great buying opportunity at its current price.

My Position: Long ZSTN.