Why You Cannot Afford to Ignore China

Published on Contrarian Profits, by Irwin Greenstein, Oct 22, 2008.

… Have there been recent bankruptcies in China? Yes.

Has the workforce shifted from a shortage to a surplus? Yes.

Are commodities prices lower because China is slowing down? Yes.

But the fact remains that China is still perhaps the most robust economy anywhere – especially with rogue petro-fascist states like Venezuela, Iran and Russia suddenly finding themselves nose-diving into a deficit with shrinking oil prices.

The thing to keep in mind is that much of this retraction can be attributed to the post-Olympics blitz. Plenty of jobs were created thanks to China’s $42-billion budget to host the Olympics (including infrastructure build-out) plus another $100 million on the opening and closing ceremonies.

It is any wonder that prices of construction materials are dropping?  Or that all of a sudden there’s an over-capacity of hotel rooms?

At the same time, inflation is China has dipped to 4.6% in September from a peak of 8.7% in February.

Better yet, many of the national banks are still solid and the savings rate for Chinese consumers remains high.

We read about how exports are suffering from tight cash in the West.

But what we’re not hearing is that China will spend massive amounts on infrastructure in the future.

By 2025, an additional 5 million buildings — including up to 50,000 skyscrapers, or the equivalent of 10 New York Cities — could be built in China, said the McKinsey Global Institute.

China will spend $62 billion on 97 new airports by 2020.

As recently as July, Merrill Lynch raised China’s three-year infrastructure projections from $400 billion to $725 billion – an increase of 81.2%.

These ongoing investments in fixed assets means that China is funneling 45% of its GDP into construction and infrastructure, a record-breaking number according to the Standard Chartered Bank in Shanghai.

Admittedly, China’s economy is no longer in hyper growth. But instead of seeing the glass as half empty, it should be seen as half full. (full text).

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