What’s going on with China? Soon after the Olympics, China disappeard. Much was said about how China went from importing huge amounts of goods and services to importing and exporting next to nothing. A lot of this comes from the China stimulus. Nobody knew where they went. Now, they’re coming back and it appears that they are coming back with one of best economies in world. Still though, it may be the best of the worst.
Many people are talking about China being an economy that has bottomed. Not only are investors talking, but they are investing. What are the facts behind this?
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“China looks set to be the first major economy to recover from the current global meltdown,” said Lu Ting, an economist with Merrill Lynch & Co. in Hong Kong. In November, the China stimulus plan went in to effect. That resulted in building of public housing and three new railways. The Chinese government committed 1.2 Trillion Yuan to this stimulus. The effect of this stimulus is beginning to take effect.
While China is the only one of the world’s three biggest economies still growing, the expansion has slowed to 9 percent last year. China has the ammunition to maintain growth, said Merrill Lynch’s Lu. It has public debt of only 18.5 percent of gross domestic product — compared with 75 percent in India. China has foreign currency reserves of $1.95 trillion, and a balanced budget. It’s also important to note that currently, China is buying U.S. Government debt at a blistering pace.
Next, China is importing more. Their iron ore importing has increased 28% since October and Coca-Cola and McDonalds report a large increase in revenues in the country. Again, the China stimulus in action.
Last, China’s version of the Dow Jones, the Shanghai Composite Index has climbed significantly since last year’s November low. For perspective, the Dow Jones would have to be above 10,100 to be up by the same amount. Investors are paying attention and putting money to work in this rapidly recovering country.
How can the home investor capitalize on China? It’s difficult because of government regulations but my favorite way is by investing in an ETF. The iShares FTSE/Xinhua China 25 Index (FXI) ETF. The fund holds the top 25 largest Chinese companies, including China Mobile, PetroChina (PTR), China Construction Bank (CICHF.PK) and other large names. When you look at the charts, you will see an unimpressive growth line but keep in mind that China is just now being noticed and if you take a position now and hold it for the long term, you are most likely going to see very healthy growth.
Last, by investing in FXI, you can tell all of your investor friends that you are an international investor. How impressive!
Many say that the recent economic bull market isn’t a result of the American stimulus. Instead, it’s a result of the China stimulus. Whether this is true or not, there is no doubt that China is leading the way. If nothing else, they are buying our debt in large amounts.
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