Making the case for China: There's no stopping China
Its growth passes Japan in economic might
By JAMES ALTUCHER
Last Updated: 4:41 AM, August 1, 2010
Posted: 1:29 AM, August 1, 2010
China has surpassed Japan to become the globe's second-largest economy, behind only the US, a leading Chinese government economist said on Friday.
"China, in fact, is now already the world's second-largest economy," Yi Gang, China's chief currency regulator, said.
The milestone comes with a big caveat: China's per-capita income of about $3,800 a year is a fraction of Japan's or America's.
Will this bring new enthusiasm for US investors in Chinese markets or is the country a Ponzi-fueled powder keg ready to blow up?
Here are some reasons to believe in the growth engine, which, depending on how fast its exchange rate rises, is on course to overtake the US and vault into the No. 1 spot sometime around 2025, according to projections by the World Bank and Goldman Sachs.
AP
As China announces it's now the second-largest economy, there are many signs including huge infrastucture projects for investors to buck the trend and look to invest in the Asian giant.
* China's GDP is growing at 9% (down from 11%), versus probable 3.5% growth in the US. Many people have worried that China's central bank was putting the brakes on the economy to prevent it from overheating.
All that means is that growth is going from an overheated 11% to slightly less than 10%. But growth is still growth. Meanwhile, the Chinese central bank has already signaled that it is more interested in growth than cooling the economy and there will be no more tightening. Steel production is up 15% year over year. This is a leading indicator of the type of growth we'll be seeing from China over the next year.
* 50 million people per year are being added to the middle class. The Chinese middle class has gone from 5% of the country to 25%. This is a huge demographic tidal wave that has ramifications in almost every industry, both in China and in the US.
To ignore this tidal wave is to ignore stocks that will be multiplying their revenues and profits by tenfold over the next several years. Chinese auto, luxury, travel, and gaming stocks will all benefit.
* China is now No. 1 in the world ranked by energy consumption, passing the US. Additionally, China is spending more on clean energy alternatives to oil than the US. Even Warren Buffett has invested in electric car company BYD in China.
* Credit crisis risk is minimal. Famed short seller Jim Chanos is worried that China is in a real estate boom/bust cycle similar to what the US has experienced. However, in China the minimum down payment for a residence is 30%. In the US during the credit boom many people were doing 0% down with no income to back it up.
What Chanos is seeing is the surge in lending in Chines market. But a large part of that is not due to easy credit but the 50 million-plus people a year being added to the ranks of the middle class. These folks are buying houses, cars, jewelry, computers, and other pricey goods.
* Many question the honesty of the government's numbers on things like GDP growth, etc. The recent episode with Google demonstrates that the government is still not comfortable being completely open and transparent. However, what is transparent is the size of China's currency reserves (over $2 trillion in US dollars), which are generated by export growth. These currency reserves will enable China to avoid a lot of the "shock and awe" that occurred in the US in 2008.
In order for the US to solve its problems it had to go enormously in debt. The same scenario won't occur in China due to the massive surplus of currency.
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