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The 30,000 Foot View of China
I have long sat beside the table of Mckinsey & Co., the best management consulting company in Asia, hoping to catch some crumbs of wisdom. So, I jumped at the chance to have breakfast with Shanghai based Worldwide Managing Director, Dominic Barton, when he passed through San Francisco visiting clients.
These are usually sedentary affairs, but Dominic spit out fascinating statistics so fast I had to write furiously to keep up. Sadly, my bacon and eggs grew cold and congealed.
Asia has accounted for 50% of world GDP for most of human history. It dipped down to only 10% over the last two centuries, but is now on the way back up. That implies that China’s GDP will triple relative to our own from current levels. A $500 billion infrastructure oriented stimulus package enabled the Middle Kingdom to recover faster from the Great Recession than the West, and if this doesn’t work, they have another $500 billion package sitting on the shelf.
But with GDP of only $4.3 trillion today, don’t count on China bailing out our $14.4 trillion economy. China is trying to free itself from an overdependence on exports by creating a domestic demand driven economy. The result will be 900 million Asians joining the global middle class who are all going to want cell phones, PC’s, and to live in big cities.
Asia has a huge edge over the West with a very pro growth demographic pyramid. China needs to spend a further $2 trillion in infrastructure spending, and a new 75 story skyscraper is going up there every three hours!
Some 1,000 years ago, the Silk Road was the world’s major trade route, and today intra Asian trade exceeds trade with the West. The commodity boom will accelerate as China withdraws supplies from the market for its own consumption, as it has already done with the rare earths. Climate change is going to become a contentious political issue, with per capita carbon emission at 19 tons in the US, compared to only 4.6 tons in China, but with all of the new growth coming from the later. Protectionism, pandemics, huge food and water shortages, and rising income inequality are other threats to Asian growth.
To me this all adds up to big core longs in China (FXI), commodities (DBC) and the 2X (DYY), food (DBA), and water (PHO). A quick Egg McMuffin next door filled my other needs.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on the “Today’s Radio Show” menu tab on the left on my home page.
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Wow - just wow. How many things were missed and glossed over in that. Here's a hint - be very careful when listening to anyone who has a vested interest in a point of view. The covers people talking their book as well as those who are paid fees from consulting work done in a region. My other advice is to have questions prepared for both sides of the argument. You'll learn more about the situation, and the person spewing forth info, in asking tough questions than listening to some rehearsed rhetoric especially when it's laced with statistics and numbers to "wow".
If my assumptions are correct, you have 3 out of 4 Chinese with little say or participation in the economic growth of their country and are little more than serfs/slaves to the elite running and stealing all the riches. Until this picture changes China has no chance to become more than what it is already, cheap manufacturing destination controlled by the few in the politburo.
My God, someone has taken a big gulp of the kool-aid. There are so many problems with the giant assumptions underlying this thesis it isn't funny. Not typical of MHFT.
There's some looseness here in the usage of the terms Asia and China. Yes, Asia has a huge demographical advantage. But China does not. Thanks to the one-child policy, it is going to get devastatingly old before it has a chance to get especially rich.
And the simple fact that Sahnghai market is in a downtrend since August 2009, and still below 50% from the al-time high doesn't worry anyone? Shouldn't the forecast that "China’s GDP will triple relative to our own from current levels" propel stocks higher??? The market prices don't lie. Especially over long periods of time. But poeople simply tend to talk "their book."
So China thinks that their people will buy the horrible quality products to make up for export losses? Some how I think not.
I at one time was on the China bandwagon but the more I learned about China (not just the economics) the less monies I invested in that place until I now have limited exposure.
No thanks, I'll make my money somewhere else.
You should be accumulating Chinese solar shares at these prices and keep adding on any weakness. As far as China, read my last comment, When the facts Change?, which provides a link to Niels Jensen's April 2010 letter where he discusses the Chinese trade deficit.