In this second post, I will share my thoughts regarding investments in China. Being a CPA, I am relatively more conservative than others by training. Regardless, I will say “strong buy”, with caution, but still, strong buy.
The government. This is a government with a strong political determination whether you like it or not. Right now, it’s determined to grow the economy. Per my Chinese friends, this is one answer the government has to the social tension in China now. Despite the government corruption, Chinese people are still happy enough when they have a solid bank account at home. In terms of political determination, I will share the story of the steep steel production decrease Nov and Dec of 2009. Why? An electricity efficiency goal that was set in the beginning of the year, as year end approached, the officials cut off the electricity for the steel mines/factories to meet the goal…
The infrastructure. Transportation is one of the first things in place in terms of economic development. This is no news to the states. “The United States as we know it today is largely the result of mechanical inventions, and in particular of agricultural machinery and the railroad. One transformed millions of acres of uncultivated land into fertile farms, while the other furnished the transportation which carried the crops to distant markets”, says John Moody. And may I add, it also carries all other resources including people to distant markets. Right now, China is building its high speed railroad across the nation. The part that connects Tianjin, a provential capital city, with Beijing has already been in operation since May 2010. What used to take 3 to 4 hours is now a 40 minutes commute. Speed? 350km/hour, about 220 miles/hour. Price? US$11, lunch price. By 2011, China will have the longest high-speed railraod than the rest of the world COMBINED. An affordable high-speed transportation means this nation is shrinking with resources available at the tip of the finger in every part of the country.
The potentials. The government has put RMB850billion, about US$127billion, in healthcare spending, and will have 5.8 million affordable housing units in market by end of 2010. It’s also increasing expenditure on education and pensions, providing subsidies on cars and home appliances. Such actions are big incentives for consumer spending and investments, especially in this nation, where people save. Currently, the % of net export to GDP is already shrinking indicating a growing domestic demand, and this is the trend. It has fundamentally strong income and demand growth.
In the next post, I will discuss why I said “with caution” in the beginning.
