 | Investment U E-Letter: Issue # 524
Thursday, April 6, 2006 Investing in China in 2006: Red Capitalist Report #1 -- You Won't Believe What I Saw In Shanghai!
by Mark Skousen, Chairman, Investment U
"Poverty is a good thing. It gives rise to a desire for revolution." - Mao Tse-tung (1958)
"To get rich is glorious." - Deng Xiaoping (1978)
I just returned from a two-week fact-finding mission to China, and you won't believe what I saw.
Beijing is no longer just a political landmark. I saw hundreds of high rises under construction outside the Forbidden City. Cranes as far as the eye can see… A local expert told me that it has little to do with the 2008 Olympics. Millions of rural Chinese are moving to the big cities to take advantage of the Red Capital (as in capitalism).
In Chongqing, a city of 6 million in the interior of China, I witnessed half the city being rebuilt with skyscrapers and tall cranes.
But nothing prepared me for what I saw in Shanghai, the country's financial center. In this issue, we'll answer the question many are asking these days…"should I be investing in China in 2006?" China Is Completely Transformed… And 75 Million More Are On the Way In My wife and I were in Shanghai in 1989, when the city was under one big bulldozer and most of the people traveled by bicycle. Now, 17 years later, I see the results - they are staggering: Hundreds and hundreds of high rises, either built or under construction. More cranes. (It is estimated that 80% of the world's cranes are now in China!) And everyone drives cars. (Shanghai is one huge traffic jam.)
I met an old friend there, Jim Green, and his wife, Renee. Jim informed me, "Shanghai has 4,000 skyscrapers now, twice the number in Manhattan, and plans to build an additional 2,000 in the next five years. And this is just one city in China. There are over 170 cities with populations over a million. They are building, throughout the country, the equivalent to a city the size of Houston every month, or of San Francisco every two weeks!"
But Jim and others in Shanghai also pointed out that this unprecedented building boom is fraught with risk. There are millions of square feet of new, un-rented living and office space available (many empty buildings). Cities are trying to stay ahead of demand, with an estimated 75 million people expected to move from rural areas to the cities of China in the next five years (if it happens, it will be the largest mass migration of people anywhere in the history of the world). But this space will probably be filled, if all goes according to "central plan." Despite adopting capitalism, the Chinese Communists are still afraid of letting the market make the decisions. Which means they will probably blunder sometime down the road. But for now, everything is looking up.
Businessmen And Party Officials Are Profiting
China has many things going for it right now, including: - A 9% growth rate (13% in Shanghai)
- A literate, hard-working population of 1.2 billion (who are also future consumers)
- Cheap labor earning an average of $160 a week
- A strong and stable currency
- Gigantic trade surpluses from abroad due to huge profits from export-oriented businesses
- And foreign exchange reserves approaching $1 trillion.
The government is encouraging this fast pace. The Chinese are determined to elevate their status in the world view. We heard Dr. Anyue Zehan, counselor to the Beijing City Government, speak eloquently about the rapid rise of China as an economic powerhouse, and he repeatedly praised the USA as "our partner" in success. New president Hu Jin Tao speaks constantly about the importance of "innovation" in the Chinese economy. The mandate is clear.
The new capitalists aren't the only ones seeking the glorious path of wealth in China. Top Party leaders own huge stakes in government-controlled companies, and stand to reap immediate windfall profits when these companies go public. So they are beginning to do more of these deals.
The China Communication Construction Group IPO later this year will be one of those, and is expected to be extremely profitable. Why The Time Is Now To Be Investing in China… Here's How To Profit Nothing anytime soon is going to stop the Chinese "bulldozer" from continuing its relentless press toward ultimate world market domination. Might as well join the bandwagon and let your investment portfolio benefit from this unprecedented success.
We heard several experts identify highly profitable investing opportunities via the Chinese Connection. Oxford Club Investment Director Alex Green and I, co-hosts of the investment tour to China, both recommend the Asian closed-end fund managed by legendary Mark Mobius: The Templeton Dragon Fund (NYSE: TDF).
I've interviewed Mark Mobius several times, and he worked 24/7 looking for the cheapest ways to profit from the Asian boom. His brilliant research has paid off for investors: TDF is up 45% in the past year, and 130% in the past three years. And it's still selling at a discount to net asset value. Good investing,
Mark P.S. The China boom is so unprecedented that I will be writing several columns over the next few weeks on this topic, including potential danger signs in the Chinese economy beyond 2006. Today's Investment U Crib Sheet - Where There's Freedom, There's Money To Be Made… Every year for the past 12 years, the Heritage Foundation and The Wall Street Journal come up with their "Index of Economic Freedom." Using the most current data available on taxes, tariffs, regulations, monetary policies, the rule of law, and other key information, they rank 161 countries by degrees of economic freedom. Find out how China's ranked in issue # 505: The Index of Economic Freedom: Where There's Freedom, There's Money To Be Made… Especially In This Fund
- And speaking of the Templeton Dragon Fund… It's hard to ignore the recent concerns we've had as investors. Flat five-year returns in the U.S. stock market… record trade deficits… rising inflation… Be sure to check out Optimist John Templeton's Five-Step Plan. There have been few better investors… See Investment U # 482: Sir John Templeton's 5-Step Strategy For Financial Success: How to Build Wealth With Risks, Bargains and Tax Deferral
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