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China Finally Recognizes Its Excess Capacity

Those who are familiar with Chinese strategies during the 1997 Asian Financial Crisis are not surprised by Chinese continuing investments so far into this global crisis, and will expect massive pruning of outdated industrial capacity later.

Chinese strategy this time is generally similar to their strategy in 1997, only at a much larger scale. At the early panicky phase of the crisis, they continue to invest in NEW industrial capacity, this scares the hell out of western capitalist bean counters who looks no further than the next quarter ROI, but perfectly logical for the pramagtic Chinese because jobs and confidence are dearly needed in a downward spiral.

As soon as things settles down and there seems to be light at the end of the tunnel, China begins to trim and may even prune back severely outdated capacity and leaving only the newest most productive industrial capacity. Thus, they weather though a crisis and going into recovery even more competitive.

China is not the only Asian countries who does this successfully, but it seems they have been executing this strategy even better than their neighbors.

China Finally Recognizes Its Excess Capacity

Last September when the over-leveraging bubble were busrting globally, China found itself the only major economy that are not in a position to be forced to deleverage, but in a position to leverage UP. And with their stimulus package they sure did leverage UP when all OECD countries were deleveraging down the drain. This is a courageous move that scares most of the mere mortals, but admired by astute investors and economists over the world.

Against many clueless skeptics, the Chinese stimulus worked better than 'expected' and not only boosted Chinese economies and provided crucial support to Asian, Emerging, and Commodity-based economies of the world. Latest Q2 recoveries in Germany and France showed that even major OECD countries counted on China to boost their economy.

Now that the panicky downward spiral at the OECD economies appeared to be over and some beginning to muster some modest signs of strengths, the Chinese, ever so logically, begins to reign in any excess less than a year into their fast and effective stimulus package. They didn't pinch pennies when the world is spiralling downward. But they are not going to waste away of their hard-earned trillions either.

If events going forward proves there is a second phase of this global crisis afterall, remember that China still have plenty of ammonition to fight it. But at the moment, with some economist beginning to predict 10% for Q1 2010, it is a good time for China to tighten control a little bit.

Clint Cox: Digging for Opportunities in Rare Earths

Some good useful if elementary information, but frankly, also a tedious, chatty teaser of an article. At the end, no investable ideas were offered.

Hope some readers come forward with some concrete ideas.

Even the Price of Tea Is Controlled in China

Don't invest in another country if you don;t have sufficient knowledge of that country.

Don't pick up advice randomly from people without a proven track record in INVESTING in specific countries. Foreign policy researchers are not investors. Neither is 'consultants' who are a track record of being totally wrong and missed the big picture and big opportunities.

If you don;t understand this, better stay with the proven strategy of buying 'blue-chip, industry leader', 'secure-dividend' companies in the most 'investor-friendly', 'open-free-market' country in the world.

I'll bet 2, 3 years ago, this meant loading up with 'proven quality stocks: Citigroup, Wachovia, GM, AIG, GE, ......

Opportunity to Sell Into China's Illusory Stimulus Package

China is the the urbanization / industrilization phase of national development. It has a very large rural population that will need to migrate to cities to find productive work. Most economist believe China need to maintain 8% GDP growth in order to create enough jobs to assorb those new workers, or else China will face social chaos.

Some economists are beginning to predict as low as 5.5% GDP growth for 2009 due to global recession. The 4 Trillion Yuan stimulus package are calculated to provide a 2% to 3% boost in GDP growth in order to ensure China gets the 8% growth it needs. Additional measures are also being applied.

This package are almost unanimously prasied and admired by various commentators on CNBC today. Even long-time China basher Peter Navarro had to praise it, saying that it is 'ironic' that China is showing us the way forward, or something to that effect. For people who know Navarro, this is a shocking U turn.

Finally, China's domestic stock market is notorius for failing to predict or even reflect economic reality. Slowing from 12% to currently supposed 9% is also quite a shock.


On Nov 10 10:18 PM Tony Petroski wrote:

> I don;t understand how an economy growing at 8% a year, down from
> 12%, needs a "stimulus," nor how such a country can have stock values
> down 75% and more. Can we trust the word of the communists or not?

Opportunity to Sell Into China's Illusory Stimulus Package

China excels at central planning, and the national transport and energy infrastructures are tools for managing a smoother economic growth. There are long term plans and then there are 5 year plans. The plans are not rigid as many may think. When face with 12% GDP growth and overheated commodity markets like those of 2007, the central planner may slow down the funding and scheduling to planned projects to avoid overly stressing the economy. When faced with sub-par growth and subdued commodity markets, China can expedite those projects. The money and the construction capacity are in good supply.

Opportunity to Sell Into China's Illusory Stimulus Package

Mr. Saxena’s observations may be good, but probably far from complete, and maybe incorrect. Depending on how sharp the short term market response may be, he may risk a very good buying opportunity if he attempts to profit by selling or shorting China plays under current depressed market conditions.

It is true most of the components in the 4 Trillion Yuan package consists of projects that were already included in other longer term plans. The emphasis is on the expedited approval and funding of those projects already in the current 5 year plan, to be expedited into 2009 and 2010. So the short window of planning delay expected by the author may not materialize at all. In fact, today, the expedited START of two railroad projects were announced, in addition to 2 others started in the last two weeks.

The bureaucratic hurdles that delay project starts surely exist in China as much as any other country, especially when those hurdles remain under the radar screen of the central government. However, in China, when the central authority is knocking on the door of local officials, those ‘bureaucratic hurdles’ has a way of disappearing instantly. So again it is very risky for Mr. Saxena to bank on those illusive hurdles.

The author also neglected to mention the numerous other policies in addition to the stimulus package. These include interest rate cuts, tax cuts, duty wavers, removal of loan reserve requirements, as well as concessions and stimulus packages at local levels in Guangdong, Shanghai, and Beijing.

If all of these is still not enough, China still have plenty of ammunitions to ensure the targeted 8% growth.

At current levels, China plays are excellent medium and long term buys.