Posts Tagged The Chinese Economy

China Bulls VS China Bears is a fight that is getting every day more contentious and it is at the heart of the global recovery story. The bears sound the voice of guys like, hedge fund manager, Jim Chanos who is famously shorting China now. Jim Chanos, the hedge fund manager, gave a presentation at the London School of Economics earlier this year, outlining the bearish case on China. He cited Paul Krugman’s sceptical essay on Asia’s miracle back in 1994 which said, “Economic growth that is based on expansion of inputs, rather than on growth in output per unit of input, is inevitably subject to diminishing returns. Chanos sees China as a typical emerging market scenario of overinvestment”  The fear is that if this thinking is even partly right and China has a economic jolt at a time when Europe is cutting budgets, today’s market shakes could turn into another crash. Bears also compare China to Japan in the 1990s, when a rising economic power busted into an asset collapse that they never really recovered from. The bulls argue that China has silenced the doubters again and again in the past. China has the unique quality of also building a domestic consumer class among a pool of 1.4 Billion citizens. The economic managers keep getting it right and the macroeconomic and fiscal scenario is strong and getting stronger. The focus point of China´s perceived achilles heal at the moment is property markets. Ill cite a recent article in the Economist magazine on China´s property market titled, “Home Truths, China´s Economic Boom Can Survive A Property Bust.¨  ” A recent study by the Bank of Japan concludes that China does indeed resemble its eastern neighbour—but in the 1970s, not the 1990s. Like Japan then, China today has a strong demand for housing, fuelled by fast growth and rapid urbanisation, and a tolerable exposure to debt.  Mr Rothman and his team surveyed over 350 middle-class households outside China’s biggest cities, where prices are at least 60% cheaper. They found a taxi driver in Zibo who had saved enough to buy his home without a mortgage, and a professor in Wuhan who owned a flat close to each of the two universities he taught at. Half of the households had paid cash, although many had borrowed from friends and family. Of the others, 86% spent less than 30% of their income on mortgage repayments. Mr Rothman reckons that three-quarters of China’s homeowners remain stuck in cramped, shoddy flats received a decade ago from the government. They are keen to cross the tracks to a new home.”

I dont know if I would Call myself a “China Bull” but I confidently assess that our stakeholder stocks in China such as China Aluminum, China Construction Bank, Industrial and Commercial Bank of China, Jiangxi Copper, Geely Automotive, China Life, China Shenhua Energy, Denway Motors and PetroChina will achieve our goals of a 200% return or more within 5 years , especially because we will stay disciplined about cost averaging in and lowering our average price per share on dips.

Well, The Chinese Themselves Are Riding The Bull

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China’s Shanghai Composite Index is off 21 percent from its Nov. 23, 2009 high. Consumer prices rose 2.8 percent in April from a year earlier, and property prices jumped a record 12.8 percent. New lending is unexpectedly high at 774 billion yuan. In short, concern that new tightening measures will cool economic growth worldwide sent crude oil prices down by as much as 1 percent today and copper prices lower for a second day. This matters for our oil and base metals companies. The Big Picture…China is growing quickly and oil and base metals will be in demand. Banks will keep lending.  The current  fear around tightening is not a long term concern.  They are purposely trying to slow the economy down from a 12% annual growth rate and slow speculation in urban Chinese property markets.  The market just priced that in at 21%.  It may go down more but do not expect a sell off.  Chinese macroeconomic fundamentals are solid but they still have to fly the plane.

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That means that China is a wise long term bet and if investors are disciplined and buy on corrections, China is still the right place to be. CR Capital is a long term bull on China. The infamous hedge fund, Long Term Capital´s, lead counsel just announced that China is in the midst of “the greatest bubble in history,” and his reasoning is that the Chinese central bank’s balance sheet resembles that of a hedge fund buying dollars and short-selling the yuan. Meanwhile, Gideon Rachman with the FT just wrote a compelling article, “Bubble or Not the Rise Of China Is For Real”, commenting “But in other, more important ways, China is a much more serious challenger to American hegemony than Japan ever was. The most obvious point is demographic. America’s population is more than twice that of Japan; it is less than a quarter of China’s. Japan was (and is) also a democracy, an American ally and the base for some 50,000 US troops. China is, by contrast, a geopolitical rival. If China keeps growing fast then inevitably its economy will, at some point, become larger than that of the US – and that process will certainly change the global balance of power.” Again, the demographics, the sound macroeconomic story, the world´s export champion and competent economic management all favor long term strong growth in China. I think once the Chinese middle class becomes very comfortable buying, then the cat will be out of the bag. Our concern is not whether share prices are overvalued at this moment.  Perhaps they are? This is why we are heavily weighted in cash. It´s the long run that we are watching.

Macroeconic Character Is Destiny

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Private Banking

The ultimate symbol of mass market consumer power has now officially switched to China.

http://www.nytimes.com/2009/12/10/business/economy/10consume.html?_r=1&hpw

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Equity Advisors

Booming in China