Five China Precepts

If you are long-term investor, you cannot afford not to look at China.

Consumerism is taking root. According to China’s National Bureau of Statistics, the country’s retail spending advanced 16.2% in October and should easily hit the 15% to 19% target for 2009, essentially that the increase in consumer spending in China will be larger than the retail spending growth in the US, Europe and Japan combined. Government stimulus programs, including rebates on ‘white goods’ and tax cuts for low-emission vehicles – helped China’s car sales increased 43.6% in October. Now, China is the world’s largest car market, having replaced the United States earlier this year. Sales of home appliances are also up sharply, rising more than 35%. According to Carbon Monitoring for Action, China’s power plant capable of handling Kansas City’s electricity needs every nine days and a city of the size of Philadelphia every 30 days.

China is ready to serve with its service sector is now growing twice as fast as its construction and infrastructure segments. More than 30% of China’s workers are employed in service-sector jobs. Beijing has shrewdly directed huge portions of its stimulus package into the country’s service sector as part of its broader strategy to reduce its dependence on exports and transform China into a stronger, standalone economy.

There is more to China than exports. Truth to be told, net exports account for only 20% of China’s GDP. According to BNP Paribas, China imports nearly 90 cents worth of goods for every $1 in exports – means that at most there is 10 cents worth of ‘flux’ in China’s economy.

China has an exit strategy with its global financial crisis stimulus initiatives and is utilizing private spending to address any interim shortfalls. Beijing has raised capital requirements for banks, raised lending standards and generally put the kibosh on easy money. On an overall basis, China is well ahead of the curve while the US is trapped in an economic minefield of its own making.

Spending pattern is undergoing a needed shift. In the old days, public spending and that of state-owned enterprises outweighed private investment. The two have flipped and it is a significant shift.

The $2.3 trillion of capital reserves give it almost unlimited flexibility. It almost needs no explanation.

As for the contention that China’s economic and stock market growth rates are unsustainable, I can certainly envision a near term pull back. They are probably right. That is normal for any financial market and here is the thing – When it comes to China, I am investing for the long haul. I know where I will be putting my money!