No Moss

Considerations on Investing in China

Here are some things to think about when investing in China. First, China has a big inflation problem right now. Inflation is a problem for the middle class and a nightmare for the poor. The government has to take action to reduce inflation to avoid serious instability. One of the things they're doing is tightening the reserve requirements for banks, i.e., raising the amount of deposits the banks have to hold to lend the same amount of money. This, in turn, depresses growth in the long run.

Another problem for China is that many private companies would love to go public, and that has the potential to dilute the market to the point where you don't get the huge runups that you saw prior to late last year.

China is still growing rapidly, and there is still demand for stocks, since the alternatives are real estate, which is falling in my area (Shenzhen) and bank deposits, which don't offer a negative return viz a viz inflation.

Lack of transparency in financial statements, endemic corruption and theft of company assets, and government involvement in both regulation and ownership of the companies are all factors to look out for.

On the other hand, the RMB is rising vs. the US dollar, which gives American investors a hedge, and there is an arbitrage opportunity to investing in shares listed on the Hong Kong index (Hang Seng Index, or HSI) and one of the China exchanges (Shanghai and Shenzhen).

It's all to complex for me. BTW, my guess is that Duder is Chinese. No pollution in Shenzhen? Check out the river, the bay, and the sky the next time you're outdoors, Duder. Nasty stuff. And Shenzhen is way better than most Chinese cities. I've been here five years.