To counteract this slowdown, the Chinese government has thrown a lot of money at the situation. Official figures show that, in 2009, that stimulus was 4 trillion renminbi ($580 billion), but Arthur thinks the figure is closer to 5 trillion renminbi, or roughly 15% of GDP. This monetary stimulus should permit China to grow at 7% to 8% per year for the next couple of years.

However, by 2011, the stimulus will be gone, and it probably won’t be renewed. It’s also doubtful that exports will rise to former levels. Therefore, the government is working toward transitioning the economy from labor productivity to capital productivity. If accomplished, it would have extremely positive implications not only for China, but the rest of the world. Forcing reform in the financial markets -- to maximize capital efficiency -- is a major thrust of that transition.

While the nascent reforms currently appear diffuse, they should become more effective over time, thereby permitting capital productivity to compensate for the decline in labor productivity caused by diminished exports. For signs that this strategy is working, look for more IPOs, more bond issuance, large banks lending to smaller banks, and more diversified financial channels. (If this works, there should be a boom in Hong Kong real estate -- but that’s a topic for another time.)

Louis Gave concluded the seminar with a call to consider investing in Japan. While I have eschewed Japan for decades for demographic reasons, I found Louis’ reasoning sound and insightful. To wit, while it’s true Japan’s demographics and corporate governance are terrible, a case can be made that Japan’s freefall is ending.

It’s also true that Japanese companies only restructure on pain of death -- and overcapacity is threatening them with death now. A quick perusal of corporate Japan shows that restructuring has already begun. The question then becomes: “Is this restructuring only going to foster another 6- to 9-month rally in the Nikkei, or is this the start of a new bull market?”

1. As Louis opined, bull markets begin with cheap valuation. To be sure, Japan’s P/E mutliple is high -- but in that, it’s like a cyclical stock you’d want to buy when its P/E multiple is high and the price-to-book is low.

2. It takes excess liquidity to drive stock prices higher; in Japan’s case, foreign investors and commercial/central banks should provide that liquidity. Indeed, Japan’s money multiplier is positive for the first time in 2 decades. Furthermore, the Bank of Japan is engaged in quantitative easing, so liquidity should be ample.

3. It appears that detente between China and Taiwan means greater integration between China and Japan. Interestingly, Japan does more business with China than it does with the US. Therefore, if China’s transformation toward capital productivity is successful, it could be hugely positive for Japan. Just think of the bull markets fostered by NAFTA and the European Union (the Treaty of Maastricht).

4. There are increasing signs that the Democratic Party of Japan (DJP) is gaining traction over the long-dominant Liberal Democratic Party (LDP), which should have positive ramifications for Japanese equities.

Clearly, these views are “outside the box,” but again, that’s where net-worth-changing ideas begin.