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Three Reasons Why China Will Save the Day

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How to avoid missing the economic miracle.

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For US-centric investors who question whether it's really necessary to invest in "risky" overseas markets, here's an important fact to consider: It's China -- not the United States -- that's leading us back from the brink of a global financial collapse.

At a time when the US economy continues to wrestle with joblessness, a housing hangover, and heightened inflationary fears due to a questionable central bank "exit strategy," Beijing just reported that China's economy advanced at a 7.9% clip in the second quarter, up from 6.1% in the first quarter.

This is well ahead of what most mainstream analysts had been projecting -- particularly those who were writing the Red Dragon's eulogy back in January. But as I've been saying since the start of the New Year, China could well be on track for growth of 8% or more this year.

If you factor in the cash that's not included in official state statistics -- but that does influence economic growth -- it's possible that China's growth rate could grow by an additional 3% this year and as much as 5% in 2010.

That's not likely, mind you, but it's possible. And Beijing knows it.

Largely attributed to China's massive $586 billion stimulus program, the country's economic acceleration may seem startling when juxtaposed against the travails of other major markets and the United States in particular.

While Corporate America has admittedly buoyed investor sentiment with some better-than-expected earnings of late, many stalwarts continue to struggle. Take General Electric (GE), which is widely regarded as a global company, and which saw its profits drop 47%. Credit spreads remain tight and lenders are certainly in the pits as has been amply displayed by CIT Group (CIT), which teeters on the brink of bankruptcy. Moreover, consumers continue to struggle in the United States, Europe, and Japan.

In China, however, there's a very different story coming to light. Thanks largely to an emerging middle class of 330 million people (more than the population of our entire country), Chinese consumers are coming into their own. With savings that are as much as 35% of earned income and a desire to have what we have, goods are flying off of store shelves. The expected increase in Chinese consumer spending in 2009 is greater than the forecasted consumer spending increases in the United States, Japan, and the Eurozone combined.

At the same time, China's property markets are rising again, and home values are increasing as well. Automobile sales, always a litmus test for consumer health in any developing country, are up 48% from last year and are accelerating so rapidly that China is already supplanting the United States as the world's largest car market -- a full 3 years ahead of my projections.

But, critics ask, what happens when the music stops? They're worried that once the money runs out, China's markets could crash all over again.
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No positions in stocks mentioned.
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