China has a $586 billion stimulus plan and it appears to be working. New loans from Chinese banks increased by 21% in January and the money supply increased by 18%.
I am skeptical that the Chinese economy will get back to the boom-boom days right away, but it looks like the Chinese economy will continue to grow at a slower but healthy pace.
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{ 3 comments… read them below or add one }
Don’t feel too bad for China. They have over 800 million factory workers now, so once the companies cut the prices to reflect their own wages they will be just fine.
As for us, not so much.
I think one thing China has going for it is there political structure, unlike the US or EU the Chinese government can make unilateral decisions and get virtually no political opposition, now this is a double edged sword but wielded properly seems to be to be a powerful tool for dealing with a crisis. The 64 thousand dollar question is, will they make the right decisions, however you can bet any decisions they do make will be executed with the kind of expediency and efficiency we can only dream of, so if they get it right they will be able to implement it in a very clean manner.
The next area are social drivers, I think calling attention to the unrest building there is spot on, but there is another side to this. Chinese political leaders really can’t afford unrest on any scale and while they rule with what we might consider an iron fist there is some smoke and mirrors that that absolute rule. Large scale unrest can’t be put down in a nation that large and while the cost in lives would be staggering by any measure if there was a revolt there, I would find it very hard to believe that their leaders are not painfully and perhaps fear-fully aware of this since there is a good chance that before it was over with there would be casualties of this result regardless of what they do, this is a very power motivation to get things right, we are not talking about re-election there, this is life or death. I also don’t think they have any desire to be pushed in to having to use their military to try to put down the revolt, not that they wouldn’t but I don’t think they want to ever end up in the position.
So my conclusions are:
1. The Chinese Government can move quickly to create jobs and have nearly endless “shovel ready” projects from dams, to housing, to roads that are ready to go. These will no need for low bidders, they will not be blocked by law suits over the use of union labor or pay scales or environmental impact, those shovels will go to work fast.
2. The Chinese politicians have far more motivation than getting re-elected to fix things, this is literally a life and death situation for them.
Chinese Economics
The next view is money of course. China is sitting on somewhere around 2 trillion dollars of pretty much cash and with far lower exposure to world markets except perhaps the US and even that is a mixed bag. So that means they have substantially more resources to address their problems. Granted that have substantially more nation to deal with in the terms of people.
As for their middles class which is all they really need to address in the short term (3-5 years) it is an emerging class there so it is not like the US where it represents the vast majority of the population, thus there money per head I think will be far more concentrated than ours even though they have a lot more people.
So my conclusions are:
1. China will do a big spend to grow jobs and restore jobs quickly.
2. China can sustain even a failed program with what look like good results for at least 3 or more years.
3. China will do enormous spends on rare materials from construction to technology.
Now if this it even somewhat right, how do we make money from it, where does the smart money invest for the near future (1-2 years) starting now. This leads to my final questions:
1. What is the safest investment approach, to invest in US companies that sell to China, such as CAT or do we invest in actual Chinese stocks?
2. Where are the smart Index and ETF plays, what do folks think about FXI?
3. Disregarding the potential to China nationalizing companies, for the risk takers, what companies look good for this run?
4. Where do you see the plays in shipping?
5. Where do you see the plays in raw materials and finished materials, will US Steel (X) get any action for example?
6. Is the currency play in the US or Chinese currency?
Thanks
Is China using broad based corporate and marginal tax cuts in their stimulus plan as earlier news reports said? Also, how hard is it to find a non US bank that has accounts based in Yuan or Yen?