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Six Ways to Profit as Consumerism Supplants Exports, China Throttles Up GDP Growth

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In the decade that just passed, most investors who wanted to profit from China did so by focusing on the export trend. That's no longer the right lever to pull.

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Editor's Note: Keith Fitz-Gerald is the chief investment strategist for Money Morning, an online investment research site.

There's something inherently satisfying about waking up on a clear, crisp fall day in this bustling capital city, and seeing this headline atop the lead story in this morning's China Daily newspaper: "World Bank Sees Change in Growth Pattern."

In essence, the World Bank has finally acknowledged what my firm's been saying for several years -- that China's accelerating domestic growth is already reducing its once-almost-total reliance on exports.

This is an important validation of our investment strategies and of China's newest economic policies. Investors who see and understand these developments can expect to enjoy some significant long-term successes.

A Strategic Shift

I've spent the better part of the last two decades watching, traveling through, and even living in different parts of Asia, which means I've had a ringside seat for China's economic makeover.

This Asian giant has undertaken a huge economic development plan aimed at modernizing the country's roads, water and sewer systems, and power-generation capabilities -- just to list a few examples.

At the same time, however, Beijing has done a lot to spur domestic demand in an economy that's traditionally lived and died with the global export market. By boosting domestic consumption from consumers and companies, China's leaders have shifted the country's reliance away from having to depend too much on the economic policies of other countries.

That trend will continue -- which is really fortuitous, given the big slowdown in global exports that we're expecting next year (something the World Bank is now apparently focused on, too, according to the newspaper headline just mentioned).

Indeed, China's latest five-year plan, officially referred to as the Proposed 12th Five Year Plan covering 2011-2015 places an emphasis on "economic rebalancing," which is how the government refers to this shift in focus from external growth to more-sustainable internally driven economic growth.

The plan includes the acceleration of such non-export-driven sectors as health care, education, and services, while folding in such overlying macro concepts as urbanization. Urbanization, in case you're not familiar with the term, is the mass migration of 500 million people into China's top-tier cities within the next 10 years.

That sounds like a long time, which is why many investors will be tempted to blow it off. After all, China was once only the fourth-largest economy in the world. Then it was the third. Now it's the second. And still, I'm amazed people tend to think China's ascendancy will happen "some day."

It's happening right now.

A Picture of Growth

To get a better understanding of what's taking place in China, let's take a peek at China's trade surplus as a ratio of its gross domestic product (Trade Surplus/GDP). This year, it's likely to drop below 5% -- which represents a decline of nearly 50% from the pre-crisis level of 10%.

Even though China continues to export, this decline means that the value of those exports as a percentage of GDP is dropping. And that means the country is consuming more of what it produces internally.

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No positions in stocks mentioned.
Fifteen trades. All profitable. Since launching his Geiger Index trading service late last year, Money Morning Investment Director Keith Fitz-Gerald is a perfect 15 for 15, meaning he's closed every single one of his trades at a profit. And he did this during one of the most volatile periods for the U.S. stock market since the Great Depression. Fitz-Gerald says the ongoing financial crisis has changed the investing game forever, and has created a completely new set of rules that investors must understand to survive and profit in this new era. Check out our latest insights on these new rules, this new market environment, and this new service, the Geiger Index.

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