DON’T WORRY BE HAPPY
I know that sounds simplistic and too optimistic, but the fact is, that’s the conclusion I have come to after many long and sometimes exhaustive meetings in China over the past week and a half. I have looked at 20 sectors of the economy past, present and future. Including, transportation, infrastructure, utilities, raw materials, intermediate goods, finished goods, financial sectors, service sectors, agriculture sectors, and many others.
I believe that China will grow, and grow rapidly, for about five more years, which is as far out as I dare prognosticate. However, this does not mean that there will not be problems and scary periods. This does not mean that there will not be politically touchy moments as China moves to assert its leadership in the world: first on an economic basis, and later on a military basis. Also, this does not mean that there will not be naysayers. There are always naysayers.
In spite of the fears, in spite of the negativity, in spite of those who do not want change and want to keep the status quo or close to quo, growth will continue.
CHINA WILL GROW AT ABOUT 8-10% FOR THE NEXT 5 YEARS.
The question arises. So What? To those who live in Europe, Canada, Argentina or India, who might say ‘Who cares if China grows? The answer is: You care, because China’s growth changes the world in which you live in many ways. China’s growth will benefit most people and hurt a few.
WHAT ABOUT ALL THE ARGUMENTS AGAINST CHINA’S GROWTH?
Potential problems to China’s growth lie in the banking system, pollution, water availability, dissatisfaction among the masses, etc. We have considered all of these and still believe in the growth model. To some it might sound hard to believe, but seeing it in-person gives an insight that is hard to get otherwise.
CHINA’S GROWTH HELPS STRENGTHEN AND SUSTAIN GLOBAL ECONOMIC GROWTH.
Global economic growth increases business globally as suppliers to China and customers of China benefit. Value added manufacturers who get raw materials cheaper, suppliers of intermediate goods or raw materials, or capital get better markets and more secure profits. Sure some competitors will be hurt, but the benefits of growth usually far outweigh the problems.
If China grows, all other economies are likely to grow more than they would over the next few years.
A READER MIGHT ASK, ‘THESE ARE YOUR CONCLUSIONS? IS YOUR RESEARCH METHODOLOGY PROPER?’
I talked to a lot of market participants, including a lot of economists, manufacturers, real estate developers, venture capitalists and investors. I examined the data from the past 10 years. I talked to the economists whose predictions had been most correct, and tried to determine why they had been correct. Finally, I came to my own conclusions. The overall conclusion is that China will enjoy strong growth.
SECTORS FOR INVESTMENT IN CHINA
As I have said many times in recent years, especially after my visits, China is a hard place for direct investment. No accurate accounting, no speedy legal redress, changing government priorities, changing partners in your venture are reasons to approach direct investment with caution.
Since the mid-nineties, we have only invested in China via Chinese stocks traded outside of China. For example, Hong Kong, London, U.S., Australia or others are countries where accounting transparency is required, and clean accounting audits by respected international firms are required. Nothing has changed; we would still invest in this way.
AREAS OF OPPORTUNITY
Energy – Provides the driving force for the entire growth of China. Demand for energy in the form of oil, coal, etc. will be strong.
Gold – As Chinese grow richer, they accumulate more gold as a personal savings vehicle. The Chinese government buys more gold with their foreign reserves as a long term investment. The people also buy more gold and platinum jewelry (Chinese women often prefer platinum jewelry because they think that it looks better on their skin.)
Food grains – As more meat is incorporated into the Chinese diet, as more agriculture land is taken for development and buildings, and as more grain land is shifted to more profitable vegetable and fruit crops, shortages of wheat, rice, corn and cotton will develop in China. Within a few years, we expect to see large imports of these crops into China.
Services – Travel services should benefit. Within China, domestic tourists are everywhere.
Employment services – Internet based employment agencies are very popular with China’s younger employees.
Internet selling sites – These sites may be catching on in China.
Internet gaming sites – Gaming sites have been very popular. The government thinks that they will become too popular and is starting to crack down on them.
I hope this has been useful. I will write more soon. Thanks for listening.