I have been proponent of Chinese investments since China market has corrected 66% and more. I have been negating arguments declared by many famous Chinese Investment opponents.
All most all, economists and famous investors had agreed and prepared for hard landing of Chinese economy. My arguments were, if any one nation on planet, which has learned from 2008 global fall out and has corrected policies – that is china.
· If any market that is becoming wealthy( by reserve assets and size of economy)but still underpenetrated on scale of developed world, that is China. China is now 2nd largest economy after US, pushing Japan on 3rd rank.
· China is now world’s largest manufacturer.
· China is showcasing all round development. China built world’s fastest bullet train in record low time. China has achieved sending astronauts in space and building space station.
· China has achieved deep sea exploration capabilities.
· China occupies two fifth of world natural resources.
· China produces 97% of world output of rare earth metals, without which cell phones, TVs, Oil refining, electric vehicles and even guided missiles of US will not work.
· China is world’s largest CREDITOR nation. China has $ 3.2 trillion(10 times more than India) reserves.
· China has largest standing military on earth, more than 1.2 mn soldiers.
· China is 3rd nation after Russia and US having capability to destroy any object in space. China successfully destroyed its redundant weather satellite in 2007.
· US military experts have said that China is developing a new missile, code named the DN-2 or KT-2. If successful, it will make China the only country in the world capable of crippling the US global positioning system, which uses 30 satellites.
· China has secretly fired powerful laser weapons designed to disable American spy satellites by "blinding" their sensitive surveillance devices, According to senior American officials: "China not only has the capability, but has exercised it." American satellites like the giant Keyhole craft have come under attack "several times" in recent years.
· China produces 50% of Global steel production.
· China consumes more than 50% of Global Coal, Cotton output and more than 40% of Global Aluminium and Copper
I can keep writing such thing because so much China has achieved in short span of time. But, What I want to communicate is, if your understanding about China is just as neighbour of India, Pakistan and Russia and other nations, as economically emerged nation and as cunning communist nation. Then, you are only partially right.
Whole truth is China is a developed nation. China is economic superpower. China is military superpower, if not superior than US then at least equal to US. China is largest creditor nation. China is standing where US was 100 years before, when UK’s fall was imminent and US was largest creditor on the earth. Then, US was becoming largest manufacturer of the world and from that emerged superpower US. US was largest creditor to UK and used its financial muscle to overtake UK.
Understand one thing, “Power rests with creditors”. And,” to debtors, creditors are dictators”. We have seen this occurring repeatedly in history. And, “China is simply the world’s biggest financial dictator of all”. Only US owes $ 2 tn to China.
Let us check brief history to understand, why China will succeed to become superpower and rest of the world has no option but to allow ….
Between 1760 and 1830, the UK was responsible for around two thirds of Europe’s industrial growth of output. Its share of world manufacturing production leaped from 1.9 to 9.5% in the next 300 years and in the next 30 years to 19.9%. Around 1860, when British might was at its peak, the UK produced 53% of the world’s iron, 50% of its coal and lignite and consumed about half the world’s raw cotton output. British shipping also dominated the world.
By 1945, US was a mighty power accounting for two thirds of the world’s gold reserves, half of the global manufacturing output and a third of the world’s exports. Economic strength rapidly translated into military power. The US soon found itself playing a more active role in international affairs.
Compare the ratios with above mentioned facts, picture will become clearer..
History demonstrates that economic and geopolitical power has tended to rest with the largest creditor nations. In broad-brush terms, Spain dominated the 1500s thanks to South American gold, Holland gained influence in the 1600s on the back of emergent capitalism and seafaring trade, and France held sway in the 1700s. Great Britain powered its way to economic hegemony in the 1800s on a combination of industrialisation and imperialism, before the US took over in the 1900s. Asia, as a region, and China, in particular, should be the next names on the list.
As recently as the 1980s, the US was the world’s largest creditor nation. Since then a burgeoning trade deficit has been funded by foreign investment in the US. Figures from the US Treasury Department show that China currently holds around $2 trillion in US debt.
Yes, you might be asking question by now that Dhaval , where is the investment opportunity?
As true wealth in US generated after US was producing half of the world output. First America became wealthy and then Americans became wealthy. And, true wealth was generated when that transition started.
China as a nation, has become wealthy and as China has declared in 12th Five year plan, its objective is to double the domestic consumption. A process has started wherein Chinese will become wealthy.
China’s GDP on PPP basis is close to $ 11.50 compared to US $15.50 trillion. Economic growth rate of china is on avg above 7% and that of US on avg below 2% and it is to remain so for foreseeable future as said by leading economists and institutions. Combine this with the cheap production facilities and cheap labour, China can easily turn its economy led by domestic consumption from export led economy.
While some argue that China is export led economy and if Global growth slows, China will suffer huge setback. People at large are under impression that China derives 50% GDP from exports while in Reality it is 30% only. While domestic consumption contributes 40% to GDP. Investments is one area which has keep growing and now reaching to 47% of GDP, mainly due to communist nature of Govt, wherein all major factories and institutions are owned by Govt.
I believe, China is ready for next leg up. This time investors will have twin benefits. First, from the rise of Chinese market and Second from the currency differential. China has been preparing ground for being reserve currency replacing dollar from its current status. But, China is now becoming ready for final moves. Do not miss to read columns, I will update on it as time come for it.
Therefore, I am ready…and
I am about to recommend to buy Chinese equities.
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Another pressing factor to recommend China Equity is, its underperformance for last 4 years. Chinese Stock Index is still down 60% from its peak of 6100 seen in 2007. It is ironic that world’s debtor nations US and Europe are back to their peak levels(just 5-10% away from peak). And creditor nation China and Japan are languishing 60% below the peak.
Anyway, tide is turning now and smart money has started flowing in China. Those who were aggressively talking about hard lending of China are reconsidering their stance.
In attached chart, you will find that China is now ready to breach the upper channel of slant trading range. Shanghai Composite can head up for 3300 level from current 2300 that is more than 60 % upside from current level.
Stay tuned to my columns.
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