Six Ways to Profit as Consumerism Supplants Exports, China Throttles Up GDP Growth
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.
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.
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.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter