The Miraculous Rise of China - Part Two

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China is the mother of all investment themes right now. No matter how you put it - population size, demographic trends, economic reforms, corporate growth, etc. - the China miracle is real.

I’m delighted to share a few of the tremendous wealth-building opportunities made possible by China’s historic growth and show you how to profit from them.

Every major trend is either driven by China or, at minimum, heavily influenced by it. This is true for energy, commodities, technology, bonds -- even real estate.

As this land of over one billion people modernizes and makes the leap to capitalism all at the same time, I believe we will profit from some of the best investing opportunities of our lifetimes.

Four Reasons Why It's Time To Buy China

1. The Chinese Bailout Plan
2. The Secret Backdoor to China’s Explosive IPO Market
3. Chinese - American “Hybrid” Companies
4. Pollution Clean Up Plan

1. The Chinese Bailout Plan

The $585 billion bailout package that China’s announced recently may or may not help China’s economy. But with investments in low-income housing, water and energy projects, airports, disaster relief - and $100 billion for new railroads - over the next two years, this financial package provides a plethora of opportunities for investors.

China’s central government has cash reserves of $1.91 trillion. And the China Investment Corporation, China’s sovereign wealth fund, controls an additional $300 billion.

And up to now, they’ve been pretty unwilling to part with it.

But the realities of a world-wide economic slowdown, factory closings, rising unemployment, and billions of dollars of merchandise sitting on docks in Shanghai and Hong Kong are forcing China to finally open its vaults.

There is no doubt China needs infrastructure. Now the world’s third largest economy, China has grown so rapidly that many of its services are stretched beyond belief.

General Electric Co. said it expects its business in China to double to $10 billion a year by 2010 - making that country a key element of the struggling U.S. industrial giant’s strategy.

Some Possible Profit Plays

China’s shares are still down 60% from their peak, but they have risen by 20% this year and look attractive at these levels. And that brings us to some possible profit plays that should rise with the tide of this $585 billion Chinese bailout plan:

Anhui Conch Cement is China’s largest cement producer - hence, it’s certain to benefit from a major infrastructure program of this kind.

China Railway Construction is China’s largest construction group, with a special expertise in railroads.

Yanzhou Coal Mining Co. Ltd. () is an energy supplier that should profit greatly from the additional infrastructure investment.

Huaneng Power International Inc. (ADR: HNP) is a top Chinese energy producer that’s been generating losses lately due to high coal prices. But it’s likely to increase output and profits with the economic expansion that should follow the massive infusion - and the 9.3% dividend yield is rather electrifying, as well.

But a big winner from China’s infrastructure boom (don’t forget, $100 billion in railroad investment) is Brazilian iron ore producer Vale, which increased its prices to China twice in 2008. It’s now actually holding back supplies while the Chinese market rebalances. China is a huge importer of iron ore, its imports will increase with heavy infrastructure investment, and Vale is the world’s largest supplier. Best of all: With a price-to-earnings ratio of 4.3 and a dividend yield of 4.2%, Vale’s shares are not at all expensive.

China’s bailout may or may not help the average Chinese citizen, but with a just few investments, it can certainly benefit your bottom line.

Stimulus Package Could Be Doubled To Boost Economic Growth

China’s already steep $585 billion (4 trillion yuan) stimulus could double over the next three years to as much as $1.2 trillion (8 trillion yuan), a figure that would put the country’s economic growth back on track, an economist said at a Beijing summit.
Mingchun Sun, chief China economist for Nomura International PLC, said the Chinese government could soon formally announce the bigger spending plan.

Since the original stimulus proposal was announced, state and local governments unleashed a long list of projects previously held back because of initial concerns of keeping growth from getting out of control, Sun said. And with a surge in bank lending in January, China is better suited to finance more infrastructure investments.

“Looked at from the perspective of demand and financing capacity, I don’t think it will be a big problem to get to 7-8 trillion yuan,” Sun said in estimating the size of the eventual stimulus, Reuters reported. “It could be even higher.”

So far, several Chinese leaders have hinted that an increase in spending is on the way. More spending could set off an investment boom similar to that of the early 1990s.

However, with roughly $2 trillion in foreign-exchange reserves, huge domestic savings and a budget that is close to being balanced, it seems likely that China can afford its stimulus, and that by increasing domestic demand the stimulus will pull the country out of recession without causing excessive financing difficulties.

2. The Secret Backdoor to China’s Explosive IPO Market

Initial Public Offerings (IPOs) have a proven history of making people rich... practically overnight.

While Morgan Stanley, Goldman Sachs, and Citibank fight for control of China’s sizzling new IPO sector, we have discovered a secret backdoor that could make you overnight millionaires. Here’s a safe, simple way for you to get a piece of the action…without risking one dime in China.

A new sector of the IPO market -- the Chinese IPO sector -- has become a breeding ground for stock market millionaires. Now, we’re not talking about Chinese companies going public in the United States...

I am talking about Chinese companies going public in their home country, in places like the Hong Kong Stock Exchange and the Shanghai Stock Exchange. According to Business Week magazine, these exchanges are the hottest on the planet. And while pre-IPO shares are near impossible to come by, investors lucky enough to get stock before the launch date are turning small initial investments into staggering personal fortunes.

In fact, MSNBC reports that initial public stock offers on Shanghai's stock market are expected to total nearly US$36 billion. And Ernst & Young agrees, stating that 280 billion yuan in capital would be raised through IPOs on the Shanghai Stock Exchange.

People who get shares of these companies before their IPO launch date can hope to make a quick fortune. There’s only one problem.
Most hot Chinese IPOs are heavily oversubscribed. People are going to stand in line to get shares of the upcoming issues. Most will be turned away disappointed.

But here’s the thing:

There is a “secret backdoor” that will allow you to get shares of the upcoming Chinese IPO sensations before they go public.

Better still, you can exploit this “secret backdoor”... right here in New Zealand without risking one dime on a China’s exchange!

While Wall Street banks and insiders fight for pre-IPO stock... you can get in before the launch date. When these companies go public, the trading in the aftermarket should be intense. The price could double or even triple on the first day.

But here’s the thing: there is a “secret backdoor” that will allow you to buy shares of the next Chinese sensation BEFORE the IPO launch date.
It’s actually very simple. While many companies are just now going public for the first time on a Chinese stock exchange... many of them already trade in New York on a U.S. exchange!

Of course, most people don’t know about these companies. But when the buzz surrounding their IPO kicks in, and people realize they can’t get shares in China, things are going to change quickly.

People who buy shares of these companies in New York can expect to make quick gains when the stocks go public in China.

Just consider this:

When the Chinese oil company, CNOOC, went public on the Hong Kong Exchange back in 2004, it had already been trading on the NYSE for years. People who bought shares of CNOOC on the NYSE before it launched in Hong Kong are now up over 100%!

Since China Life went public on the Hong Kong Exchange in 2004, it bolted over 200%. And guess what? Shares of China Life on the NYSE have also climbed about 235%!

This is easy money. All you need to do is reach out and take it.

3. Chinese - American “Hybrid” Companies

Part Chinese and part American. These stocks are companies that do business in China, with Chinese management, Chinese employees, and Chinese currency. They make products for Chinese consumers.
Yet, these stocks don't trade anywhere in China. You can only invest in “hybrid” stocks in the United States of America.

Consider a “hybrid” company called Origin Agritech. (It's China's equivalent of the American food company Monsanto.)

It produces crop seeds like corn, cotton, canola, and rice. You can find Origin's headquarters and base of operations in China. But you can only buy shares of Origin Agritech (ticker symbol: SEED) on a stock exchange in New York.

Let me explain. Today you can find roughly 20 million officially registered businesses in China. Many of these companies want to "go public" and have their shares listed on China's stock exchanges.

But here's a problem. There's a huge waiting list for Chinese companies to go public on one of their local exchanges (2-3 years). The good news is that a good Chinese business can go public in America, in just 3-6 months.

That's why, for instance, a company called China Security & Surveillance Technology (CSCT) chose the U.S. stock market over China's. These guys provide security and surveillance technology for the Chinese Government. Rather than wait years to go public on China's stock exchange, this small company listed in America first.

Several years ago, when the Chinese government passed a law mandating this company's surveillance at every nightclub, every Internet cafe and every bar in China, shares began to skyrocket.

If you'd invested in China Security & Surveillance Technology within the past two years, then you're probably sitting on a fortune today. Ever since, this company’s shares have risen more than 600 times your money.

How does it all work? It's a pretty simple process most investors don't have a clue about.

The Secret Behind Hybrid Companies

In short, Chinese companies are able to "list" their shares in America (and become hybrid companies) thanks to what US lawyers call a "reverse merger." Sounds complicated, but it's really pretty simple.

In essence, to list in America, Chinese companies find an American "shell" company and simply back themselves in.

A shell company is a stock without a business. The business has no assets or operations, but it still has a name and a stock symbol.
Take United National Film Corporation. It stopped doing business in 2001 and became an empty shell. In 2007, United National Film Corporation "merged" with a company that makes turbines for Chinese power plants.

Now this company's name is Wuhan General Group and its stock trades in America under the ticker symbol WUHN. Just in the past 12 months, shares of Wuhan General have soared 447%.

In the past, Chinese stocks like China Security and Surveillance Technology only traded in China – on the Shanghai and Shenzhen stock exchanges.

But today, thanks to this phenomenon you can now buy shares of these super fast-growing Chinese companies – right there in the U.S.A.

So far, more than one hundred Chinese businesses have moved their shares and shareholders to the US stock market. And that's just in the past few years – since this phenomenon began.

So, what's so appealing about “hybrid” stocks? Why are they better than ordinary U.S. stocks?

And why are they better than ordinary shares of Chinese companies that you can buy in China?

4. Pollution Clean Up Plan

China is on the verge of handing investors the biggest profit opportunity in its 30-year growth explosion and it's about to do it during one of the most volatile markets in history.

The very industries that have made China rich are now “burning” precious crops with acid rain and contaminating the water with toxic chemicals. By noon outdoor workers wear masks. A recent unreleased report by the World Bank claimed that over 750,000 Chinese die annually from dirty air and water.
But all this is about to change, and fast, as the Chinese government launches one of the biggest initiatives in modern history to clean up this mess.
It’s a $486 billion spending spree – one of the largest the world has ever seen. And it’s creating an opportunity powerful enough to multiply investors’ money by over 10 times.

China’s spending spree is about to send historic waves of cash to a select handful of companies. Here’s where the money’s headed:

$80 billion is being allocated to wastewater companies for the construction of over 1,000 water treatment…

$25 billion is being doled out to “scrubbing” companies to clean the dirty air belching from coal-fired power plants…

$50 billion is being earmarked for construction of 40 new nuclear power plants to relieve dependence on its coal-fired electric plants…

$119 billion will go for the uranium needed to make those reactors hum. China's annual uranium demand is three times current available supplies...

$184 billion is being devoted to China’s renewable energy markets – set to become the largest in the world…

Over $28 billion will be invested in companies that build natural gas infrastructure...

Total: $486 Billion.

And yet if that wasn’t enough, the chief economist from Deustche Bank predicts that China will invest an astounding $754 billion over the next 36 months to reduce the magnitude of this growing, enormous problem.

I will continue to update my readers with mind boggling news from China. Stay tuned.

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