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Tom Au, CFA
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In the early 1990s, during the middle of a secular bull market, I began work on "A Modern Approach To Graham and Dodd Investing," that was not particularly suited for the decade of the 1990s, but was ideally suited for the following "Lost Decade" of the 2000s. In the early... More
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A Modern Approach to Graham and Dodd Investing
  • Another Chinese Conundrum 0 comments
    Jun 11, 2009 1:09 PM

    China is supposedly growing at about 6% this year. But it is sucking in mineral resources at a rate sufficient to support a 30% or so increase in fixed investment.

    China is growing at 6% this year. But it is actually decreasing (nominally) its imports of oil, according to well-placed sources at Standard & Poor. What gives?

    The first relationship seems easier to explain. Let's say China is basically growing at a moderate pace (for China). But it is importing raw materials at a rate that should support a much higher rate of growth. Except that it is not being put through factories in any meaningful way, as indicated by the failure of both electricity usage and labor absorption to rise. This suggests that China is basically stock piling goods. Maybe they are laying some materials down on the ground, and calling them "roads" or "railroads," and or building "warehouses" or other storage facilities out of the goods. This would pass for "investment," without directly increasing China's productive capacity.

    China isn't importing any more oil than last year. For a more advanced economy, one might suggest that the country is becoming more energy-efficient, or alternatively is growing through means such as services that don't use much oil. But China isn't at that stage of development yet.To a greater extent than even India, it is primarily a manufacturing (and oil guzzling) country. That means that is basic 6% growth number is suspect.

    China's true development path is basically a secret from the West. Sometimes it is even a secret from themselves, as officials at each level of government are unwilling to "tip their hand" to officials at other levels.

     

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