Is China’s Economy Doomed?
Is China’s Economy Doomed?
Boom or Bust
Making Sense of Many Predictions about China
 
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“Once known as an economic miracle, China now heads for an economic catastrophe.â€Â This recent internet posting contained terrifying words to be sure. But this isolated publication was just one of countless predictions calling for everything from boom to bust for China over the past few days. Whom should we believe?
There’s no doubt that China faces big challenges as western economies slip into recession. Orders for China’s exports are still increasing by double digits, but the rate of increase is definitely falling.
One key index, the Purchasing Manger’s Index (PMI), slumped by 68 percent from its record high last October. Export orders shrank by the largest degree since the surveys began, as the worldwide financial crisis weakened demand for China’s toys, textiles and computer products. So why does China’s economy continue to grow?
As we detail in this month’s issue of the China Stock Digest, Beijing has opened the floodgates of government spending. As much as one trillion dollars worth of stimulus is being injected into key sectors of the Chinese economy.
Just today Beijing upped the ante by committing another $145 billion to help poor families buy Chinese-made appliances. This new campaign is designed to absorb the excess production capacity caused by the export slump and to benefit industries like steel, plastics, and electronics.
This will be the key to keeping the Chinese economy in expansion mode, boosting the internal economy.
The worst case scenario? Probably the lowest authoritative prediction for the growth of China’s economy
comes from the World Bank. Just a few days ago the bank cut its forecast for China’s expansion from 9.2% to 7.5%. If only the U.S. could manage to grow half as fast.
As deeply as the World Bank cut its forecast, it said the country has “adequate tools” to keep the economy
moving at a healthy pace. Sure enough, one of those measures came out of the toolbox this week as the value of the Chinese yuan tumbled by record percentages against the dollar. This won’t be popular in Washington, but it will make Chinese exports more attractive to western buyers.
Not surprisingly, the brightest projections about the future of
 grow at a blazing-fast 10% rate next year. How is that possible?
The “huge†potential of domestic consumption and investment can counter the impact of a global slowdown.
While President Hu Jintao admitted that the central government faces enormous challenges coping with the global financial crisis, the shift to internal economic expansion is the key.
Exploiting the “vast development potential†of the world’s most- populous nation is crucial, so says the powerful State Council. Beijing is now working on further steps to help struggling companies in the steel, automotive, petrochemical and textile industries. It may also expand insurance for the jobless, a critical measure to avoid civil disturbances.
How times change! Just a few months ago China was clamping down on credit and reining in price increases to prevent the economy from overheating. With amazing speed, the government has changed from jamming on the brakes to hitting the gas with both feet.
The state pension fund has pledged to invest more in China’s depressed domestic stock markets. Insurance
 companies have also been instructed to boost their stock investments. Whether or not we believe that any government should tamper with the markets, the fact remains that
What does all this mean for investment in China? Although shares in
As we know, U.S. stock markets are continuing to gyrate wildly, and China-based ADRs are fluctuating in tandem. We don’t foresee stabilization among U.S. markets in the near future. That’s why we’re maintaining an extremely conservative policy towards China investments.
For the short term, new reports of weakness in the Chinese economy may further depress shares. But the
Beijing’s stimulus plans may have widespread effects during the first half of 2009. That’s when we may see the
As long as Chinese shares are being discounted, future buying opportunities are being created.
Doomsayers who predict catastrophe for China are always coming out with new predictions. The evidence says they are wrong again. Challenging months are ahead but challenge can create new opportunities.
Keep your eyes on your email inbox as we look for new opportunities. Our investment recommendations for this period will depend on quick buys and equally fast sales.
December’s issue of China Stock Digest put 8 stocks on the watch list. Subscribe now to gain access to these 8 stocks that have already earned an average of a 28% return in the third quarter of 2008. Subscribe now to gain access to these 8 stocks that have already earned an average of a 28% return in the third quarter of 2008: http://www.chinastockdigest.com/Page.php?Category=risk-free-subscription
Committed to your PROFITS from China,
Jim TripponÂ
Editor In ChiefÂ
China Stock Digest
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P.S. Did you know that May’s earthquake in China was first reported on Twitter -2 hours before it was on any syndicated news station. Do you want that same early warning system for the most recent development in the China Stock Market? Follow China Stock Digest on Twitter: http://twitter.com/csdtrippon
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Hello.
I would like to put a link to your site on my blog roll if you want to do the same for mine. It would be a good way to build up both of our readerships.
thank you.