While the West is worried about its slow recovery and high unemployment rate, China may be kicking off the next super cycle of its economic boom in a quiet fashion.
Many economists believe China is deliberately slowing down its sizzling hot economy to achieve sustainability of its growth, which is the right thing to do. Based on this assumption, raw material demand from China should be slowing down, however, the reality is that commodity demand is strong, electricity consumption is at high level, the domestic steel demands also strong, iron ore, coal, energy are all in high demand.
The housing prices cooled down a bit, but are stable, thanks to the government's tightening policy. The policy was designed to just cool down housing market with minimum impact on other industries. Many investors still doubt the economy can sustain at 10% growth rate. Investors sometimes sell on good earnings reports from Chinese companies because they are worried the next quarter will not be that good.
So what is China doing that make us think it's in the early inning of a super cycle of a global economy boom? Looking back twenty years ago, China opened its doors to foreign investment, and its East coast provinces benefited since then; as a result, China's GDP has doubled 4 times. Just recently, China surpassed Japan to become the 2nd largest economy after US. China is not stopping; It doesn't seems like China wants to slow down. The following new developments are not noticed by Western investors yet, but domestic investors have been soaked with a flood of new policies in the last few months.
1. The west development program: In July, China kicked off a new round of investment to develop its Western provinces, including Sichuan, Ganshu, Shangxi, Qinghai, Tibat, Inner Mongolia, Xinjian. The total direct strategic investment from the government is over US$700B, new industries will be developed in the region, and renewable energy, such as solar energy, wind, nuclear energy, biomass, will be the key new industries. The high-speed transportation network will be built in the coming three years according to the state plan bureau.
2. The Southwest development program: After announcing the development of its Western provinces, the central government recently announced it would invest in Southwest provinces, including Yunnan, Guangxi, and Guizhou. China plans to develop its Southwest region to better influence its Southeast Asian neighbors.
3. Recently China also announced the 3rd strategic investment in its Northern provinces, including Liaoning, Shangdong, Heilongjiang. China will boost its heavy industries in these three provinces through strategic investment from central government.
4. China will announce renewable energy policy in September as a part of the plan to reduce carbon dioxide emission and nurture green energy technologies. Green energy has been seen as the next generation of technology to lead the global economy. Much like the internet technology in 2000, green energy technologies may have a profound impact on the people's lifestyle. China is taking the lead for the moment. We would expect US to catch up in the next 5 years.
We noticed that the Chinese government has prioritized a few new industries in the next cycle of development; they are renewable energy, environmental remediation, energy conservation, and ocean technology. Investors should pay attention to following companies who have dominant market share in China:
Suntech Power (STP)
JA Solar (JASO)
LDK Solar (LDK)
RINO international (OTC:RINO)
Smartheat Inc (HEAT)
Baidu Inc (BIDU)
China Mobile (CHL)
Huaneng Power (HNP)
Huawei Technology (IPO soon)
General Electric (GE)
Author's Disclosure: long JASO GE