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International Investing
Should You, Instead, Be Investing in China’s Economic Growth?
By Henry V. Kaelber
President, Chief Investment Officer, Hoffman, White & Kaelber Financial Services, LLC
China is the world's second largest economy on a purchasing power parity basis and is driven by a population of 1.3 billion people. And, it is estimated that China enjoys a household savings rate of more than 40%, one of the highest in the world. As incomes rise, newly empowered consumers represent an enormous market potential.
For example, an estimated 4 million mobile phones are sold in China each month, the world's biggest market with nearly 250 million subscribers. That's just 19 percent of the population and sales in the last two years have reportedly increased 17 percent. And, from the CIA Fact-Book passage previously referenced, we also know that the Chinese have embraced computer technology and internet use.
Noted economist and advisor to several US presidents, Dr. John Rutledge, had this to say about investing in China’s economic growth:
“The re-awakening of China is the biggest economic storm system of our lifetimes. The opening of China has created an incredible growth machine… China is a category 5 hurricane, gobbling up the commodities and capital it needs to feed its ferocious growth. This increase in demand is the major force driving world commodity and product markets today. For example, China’s growth, not Iraq, is responsible for the run-up in oil prices; it is also the driver of the surges in steel, aluminum, and coal prices last year. It’s also generating huge increases in sales and profits for the companies selling the materials and capital goods China is buying to expand their economy. That spells opportunity for investors.”
According to Rutledge, “if you’re invested in big U.S. companies, you’re already invested in China. Many big companies…have made direct investments in China and plan to invest billions more.”
To back this up, in March of this year, China’s Ministry of Commerce, released statistics that foreign direct investment (FDI) into China from January to February totaled US$8.6 billion, up 7.8 per cent year-on-year. Hong Kong the British Virgin Islands – an offshore haven for US managed money – and South Korea topped China's major foreign investment sources. China attracted US$60.3 billion in FDI last year, down slightly from the record of US$60.6 billion posted in 2004. In 2004 and 2005, Japan, South Korea, Taiwan, and the United States were China's most important sources of FDI.
China's Top Imports ($ million)
| HS # |
Commodity Description |
Jan.-Nov. 2005 |
% Change* |
| 85 |
Electrical machinery & equipment |
156,237.7 |
21.5 |
| 84 |
Power generation equipment |
86,943.5 |
4.5 |
| 27 |
Mineral fuel & oil |
57,925.3 |
35.2 |
| 90 |
Optics & medical equipment |
44,695.9 |
22.0 |
| 39 |
Plastics & articles thereof |
30,356.0 |
19.8 |
| 28, 29 |
Inorganic & organic chemicals |
30,149.1 |
19.2 |
| 72, 73 |
Iron & steel |
29,583.3 |
13.8 |
| 26 |
Ores, slag & ash |
23,539.0 |
51.2 |
| 74 |
Copper & articles thereof |
11,824.2 |
25.5 |
| 87 |
Vehicles other than railway |
10,915.5 |
-8.9 |
*Percent change over Jan.-Nov. 2004
Source: PRC General Administration of Customs, China's Customs Statistics
China's Top Trade Partners ($ million)
| Rank 2005
| Country/Region
| Jan.-Nov. 2005
| % Change*
|
| 1
| United States
| 191,585.5
| 25.4
|
| 2
| Japan
| 166,985.6
| 10.3
|
| 3
| Hong Kong
| 120,484.6
| 20.7
|
| 4
| South Korea
| 101,457.7
| 24.7
|
| 5
| Taiwan
| 82,042.8
| 15.8
|
| 6
| Germany
| 57,079.4
| 16.8
|
| 7
| Singapore
| 29,618.2
| 24.0
|
| 8
| Malaysia
| 27,525.6
| 15.6
|
| 9
| Russia
| 26,529.7
| 37.3
|
| 10
| The Netherlands
| 26,226.0
| 38.4
|
*Percent change over Jan.-Nov. 2004
Source: PRC General Administration of Customs, China's Customs Statistics
For 2006, the US-China Business Council summarizes “some analysts do not see China's export-driven growth decelerating much in 2006. Hang Seng Bank forecasts that exports and imports will each grow 25 percent in 2006. Others are more measured in their outlook… These estimates are based on the assumption that the global economy will be weaker in 2006…and that rising domestic costs especially in land, raw materials, and minimum wages will place significant cost pressures on exporters, which already operate on thin margins.”
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