By Sasha Cekerevac for Investment Contrarians | Nov 11, 2013
I think it’s interesting how people, including the mainstream media, discuss an issue without truly understanding what it really means. It seems that skimming the surface is good enough these days, as no one seems to want to dig a little deeper.
One example is the recent reports from Chinese Premier Li Keqiang, who stated that the Chinese economy must grow at least 7.2% per year in order to limit the unemployment rate at four percent. (Source: “China Premier warns against loose money policies,” Reuters, November 5, 2013.)
As we all know, the Chinese economy is extremely important. As the second-largest nation in the global economy, its ability to manage the Chinese economy and prevent it from weakening further is quite important.
China’s Premier warned against creating even easier monetary conditions within the Chinese economy, as additional money printing could lead to even higher levels of inflation. Currently, the total credit supply is now in excess of $16.4 trillion (or 100 trillion yuan), approximately twice the size of its entire Chinese economy.
With the global economy still quite weak, China has had trouble exporting. It is now trying to transition the Chinese economy from export-led to domestically oriented, reducing its reliance on the global economy.
At least, that’s the story on the surface…
Here’s what troubles me: the Chinese economy is slowing, we all know that, yet all of its money printing so far has led to a total amount of credit supply twice the size of its entire economy.
So, what has all of this money printing really done?
It’s caused people in the Chinese economy to react by … Read More
Over the past year, I have heard a lot about how the Chinese real estate market was in a bubble and ready to collapse, similar to the state of the U.S. real estate market in 2008.
Anti-Chinese real estate pundits were saying to sell. “Chinese companies are crooks,” was a common theme and the communist regime there was not to be trusted by anyone, especially Americans, according to these talking heads.
While I do believe China has its issues and faults (heck, we all do!), the opportunity there for growth investors cannot be ignored; the country will continue to become a bigger influence in the global economy. I’m not saying the renminbi will become the go-to currency, but the economic influence of the country will only grow, especially in Africa and other emerging markets where capital is needed—we all know China isn’t hurting for cash.
The country’s real estate and financial sectors have yet to crash. The Chinese government does know a thing or two about wealth creation and financial risk. Trust me when I say it’s not the bunch of communist cronies running around with no sense of what to do that the anti-China pundits might have you believe.
China’s new leadership under Xi Jinping has a strategy in place to drive domestic consumption and reduce its reliance on foreign demand. Consumers in the country account for less than half of the country’s gross domestic product (GDP), so it’s an area that is in focus, with plenty of room for improvement. With 1.1 billion people and over 300 million people in the burgeoning middle class, the potential is enormous. … Read More
By Sasha Cekerevac for Investment Contrarians | Oct 24, 2013
When I read some of the headlines by other news organizations, sometimes I can’t help but chuckle at their oversimplification. Other media outlets take a kernel of truth, and ignore the rest of the picture, only to blow that tiny piece of truth out of proportion.
As an example, there was a recent release by the National Bureau of Statistics of China that reported the Chinese economy grew 7.8% year-over-year for the three months of July to September. (Source: National Bureau of Statistics of China, October 18, 2013.)
That headline number for the Chinese economy does look impressive at first glance. Of course, the mainstream media has used that one data point to extrapolate that the economic recovery we are all expecting is close at hand.
However, the Chinese economy is far more complex than simply looking at the headline data point of year-over-year gross domestic product (GDP) growth.
While nothing would make me happier than to finally hear of a real economic recovery occurring somewhere in the world, I’m afraid that the Chinese economy is simply being pushed higher by a government injection of stimulus that will only be temporary.
While America is suffering from a lack of economic recovery, China is also seeing problems. Inflation is pushing a seven-month high and the government is trying to shift the Chinese economy from being export dependent to domestically oriented.
So while the headline number looks nice, if the Chinese economy hits its target of 7.5% for the full year, it will still be the worst growth level in 23 years. Is that the economic recovery we should be celebrating—the worst … Read More
By Sasha Cekerevac for Investment Contrarians | Sep 27, 2013
One of the issues I’ve raised several times over the past couple months has been the question of growth potential for corporate earnings going forward.
Generally, over the past couple of years, corporate earnings have been quite strong, with companies cutting costs and buying back shares. But at some point, we do need to see revenue growth if corporate earnings are to continue rising. However, with America lacking an extremely strong economy, some U.S. corporations are looking elsewhere.
While most of the global economy remains stagnant, the Chinese economy is growing in importance every single year. While many people might have the old notion that the Chinese economy is simply a place of cheap manufacturing, this perspective needs to be reconsidered.
Many corporations are generating strong corporate earnings by selling into the Chinese economy from their domestic consumption. You might not think it, but the Chinese economy is a huge market for American firms. Just consider the recent growing emphasis on Apple Inc.’s (NASDAQ/AAPL) possible deal with China Mobile Ltd. (HKX/00941), which has over 750 million total customers. (Source: China Mobile Ltd., September 25, 2013.)
Not only is the Chinese economy developing and growing a huge number of middle-class consumers, but that nation is also one of the top countries for luxury sales. As an investor in many American companies, how that nation develops is quite important, as it will certainly be a crucial variable for corporate earnings here in the United States.
However, recent data are mixed regarding the forecast for the Chinese economy going forward. The China Beige Book International reported that the Chinese economy has slowed this … Read More