Investment Contrarians

China’s Growth

The average GDP growth for world economies has been in the three percent to five percent range over the last 20 years. This is considered a very good growth level. China’s growth rate has hovered around 10% over the last 20 years. This is why people cite China’s growth story. The country has transformed its economy into the world’s leading manufacturing hub, which has meant a large migration of people from the rural countryside to the cities. It is a very similar experience to the U.S. of the 1920s, where the U.S. experienced tremendous growth and its industrial revolution. Now it’s China’s turn.

Rising Bad Loans Indicate Impending Crisis for China

By for Investment Contrarians | Aug 17, 2012

Rising Bad Loans Indicate Impending Crisis for ChinaWith the global economy teetering on the brink of decline, many investors are looking to a resurgence of China’s growth rate. While that nation has recently slowed sharply, many economists point to China’s growth, which still exceeds that of most countries in the global economy. I would warn investors that there are many signs that China’s growth will not be as robust as it has been over the past few years. There are increasingly troublesome signs that the Chinese are being dragged down by the slowdown in the global economy, and I think it is more likely that they will lose further steam rather than resurrect China’s growth rates of the past.

One common element to the financial crisis in the global economy is when bad debts stack up on the books of lenders. This was and continues to be a problem for Japan, after the crash of the late 1980s, and we see bad debts piled up in Europe and even the U.S.

New reports are surfacing that may endanger China’s growth rate and impact the global economy, as bad loans held at Chinese banks have risen for the third consecutive quarter, according to the China Banking Regulatory Commission. This is the longest stretch of bad loan increases in eight years.

Banks in that nation are having trouble dealing with problems that are common in the current global economy: weak loan demand and higher defaults. This follows on the heels of a drop of 41% for local currency loans in July from the previous month.

With the global economy as weak as it is, there are no economic signs … Read More

China’s Growth Collapses; What this Means for Your Investments

By for Investment Contrarians | Aug 13, 2012

China’s Growth Collapses; What this Means for Your InvestmentsWhen it comes to the global economy, China is a huge player. As the world’s second-largest economic power, China has a huge impact in how the global economy will perform. While we are aware of the poor economic performance of Europe, many have hoped that China’s growth will resume its upward path and help pull the global economy out of its dire predicament.

Unfortunately, recent economic data show that China’s growth is continuing to decline at an alarming rate. The country released data showing that outbound shipments in July only increased by one percent from the previous year. This compares to an 11.3% increase for the month of June, year-over-year. That is a massive decline in a very short period of time, pointing to the global economy continuing to suffer at a lackluster pace. Obviously, China’s growth in exports is a sign of how the rest of the global economy is performing because of how much the world imports from that nation.

Further bad news regarding China’s growth was that lending in the local currency was 540 billion yuan in July as compared to nearly 920 billion yuan for June, according to the China’s central bank, the People’s Bank of China. This also is a negative sign for the global economy, as demand for loans is eroding due to a weakening for China’s growth potential. Businesses normally will only borrow to expand facilities if management believes that the future growth path is higher than current levels.

No surprise; Europe was especially weak and so was America. This is further proof that the global economy is now more than ever closely … Read More

China’s Strategy: If You Can’t Beat Them, Buy Them

By for Investment Contrarians | Jul 20, 2012

China’s Strategy If You Can’t Beat Them, Buy ThemThere is little doubt that the Chinese economy will be one of the major economies of this century. There is no question either that China’s growth will go through difficult periods. Right now, the Chinese economy is experiencing a slowdown and a property bubble that could cause severe economic repercussions to China’s growth story.

One knock against the Chinese economy is that it is too centralized. This culture of strict rules and discipline stifles creativity. It is creativity and the “animal spirits” of capitalism that have been the staple of the U.S.’s economic success story. Such brash attitudes will be difficult to nourish in a “command economy” like the Chinese economy. This is an economy that is strictly controlled by the government, rather than a free market like here in the U.S.

Certainly, China’s growth will have to be based on the country’s ability to innovate and create products and services that the world wants. The leaders in China understand this dynamic and have decided to take a different approach to improve the Chinese economy.

One thing China has that many other economies do not is a good chunk of reserves—money or capital—that Chinese companies can access to buy technology and expertise from around the world. That is exactly what the leaders of the Chinese economy are encouraging their companies to do.

The Financial Times reports that from 2010 to 2011, China tripled its investment in Europe to $10.0 billion, with that number expected to skyrocket by the end of the decade to over $250 billion. In the first quarter of 2012, China made $1.7 billion in deals in Europe, … Read More