Tuesday, January 22nd, 2013
By George Leong, B.Comm. for Profit Confidential
There are still numerous pundits calling for China to collapse. I?m not sure where this reasoning comes from. It?s true the country has stalled, and there are more issues associated with an economy that has been expanding over the past decade.
Yes, there?s a move by some manufacturers to the cheap labor markets in Latin America and Southeast Asia, but China will continue to have its share of the global manufacturing business. Armed with its new leaders and a thrust to aggressively grow its gross domestic product (GDP), I?m bullish on China.
In 2012, the Chinese economy expanded at 7.8%, the lowest reading since 1999. (Source: Yao, K. and Wang, A., ?China?s economy posts slowest growth since 1999,? Reuters, January 18, 2013.) While the below eight-percent readings have been somewhat new to get used to after a decade of mad growth, I remain positive, especially given the country?s desire to expand and avoid stalling. The massive spending on infrastructure and its focus to drive domestic consumer spending will help the country to continue to grow.
China?s GDP growth is estimated to rise to rally back to between eight percent and 8.5% in 2013, down from the previous 9.3% estimate, according to The Organization for Economic Cooperation and Development. (Source: ?OECD Cuts China GDP Forecast, Sees Policy Room To Back Growth,? MNI, November 27, 2012, last accessed January 21, 2013.) Of course, there?s the risk and uncertainty, as the country?s economic recovery will be dependent on what happens in the eurozone over the next few years.
The country?s industrial production rose by 10.3% in 2012, according to the National Bureau of Statistics. (Source: ?China?s industrial output up 10% in 2012,? China Daily, January 18, 2013.) The number is down from 2011 and clearly signals some stalling, but again, I remain confident. Compared to the readings in the U.S. and the other G8 countries, China is continuing to blaze ahead.
I like the country?s strategy to drive consumer spending higher and to rely less on foreign and fiscal investment. The idea is to turn China into more of a spending nation akin to that of the United States where consumer spending accounts for about two-thirds of GDP.
Just take a look at the comparative retail spending results. Retail sales in December grew 0.5% in the U.S., versus a sizzling 15.2% increase in China, according to the National Bureau of Statistics. (Source: ?China retail sales growth accelerates,? China Daily, January 18, 2013.) China looks like it will spend itself out of its slowing as long as inflation remains manageable.
In the capital markets, we are finally seeing some buying in Chinese stocks, including Chinese companies listed on U.S. exchanges. The Bloomberg China-US Equity index, comprising the top 55 Chinese stocks on U.S. exchanges, is up 2.4% in January. Many of the Chinese stocks found here are small-caps that I currently follow or have previously followed.
Following the selling of Chinese stocks due to fraud and mistrust over the recent years (read ?Chinese Stocks Hindered by Mistrust?), there?s a sense that the added and stringent restrictions put forth by the Securities and Exchange Commission and U.S. exchanges toward Chinese stocks have created a much-improved climate for investors.
If this happens and the trust returns, it could be a good year for Chinese stocks and investors.
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