The Miraculous Rise Of China - Part 1

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Jim Rogers: China’s economic advance is all but unstoppable.

China’s long-term prospects are so strong that even a civil war, an economic collapse or political assassinations would only temporarily delay its emergence as a worldwide economic powerhouse, global investing guru Jim Rogers said in a recent interview.

This economy has been building a head of steam for 25 years. And now it’s creating the biggest economic boom since the Industrial Revolution, says Rogers.

Miracle is the right word to describe what’s happening today in China. As this once-great land modernizes and shifts to a market-driven economy, the staggering economic growth taking place there will continue for the foreseeable future. The profit potential for investors who truly understand what’s happening inside China is equally staggering.

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 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.

• “In one astounding decade,” says Rogers, “China’s manufacturing base for durable goods increased one hundredfold.”

• If projections hold, China is set to surpass the United States as the world’s largest economy…

• Beijing now has foreign reserve currencies surpassing $1.8 trillion – now the largest in the world…

As the world’s investors continue to hide in panic, shrewd investors like you and me are going to make a bundle as investment in China surges and the country uses its newfound capital to build more roads, bridges and infrastructure at record pace.

A recent report by McKinsey Global Institute will tell you the same thing:
“In 20 years, China’s cities will have added 350 million people—more than the entire population of the United States today.”

“By 2025, China will have 221 cities with more than one million inhabitants—compared with 35 in Europe today—and 24 cities with more than five million people.”

“By 2030, 1 billion people will live in China’s cities…170 mass-transit systems could be built…40 billion of square meters of floor space will be built in five million buildings—50,000 of which could be skyscrapers.”

In other words, as China transforms itself from a nation of farmers to a nation of urban dwellers, the equivalent of 10 New York cities will need to be built, and in doing so will richly reward U.S. investors who invest now.

Truth is, China will continue to grow…

• Despite the collapse in the U.S.
• Despite the failure of the U.S. banking system
• Despite the demise in the U.S. housing market

The reason is simple:

With 8% growth, China’s economy is still growing like a weed. Its standard of living is on the rise. And its people are spending like there’s no tomorrow: buying into a much richer lifestyle, filled with cell phones, big-screen TVs, and cars—the same things we Americans take for granted.

When you consider that by the year 2025 China will have 221 cities with more than one million people living in them, you can only imagine the kind of money that is going to be made, as China’s newfound consumer class enters the marketplace and replaces the American consumer as the supreme driver of world growth.

They call themselves communists, but they’re among the best capitalists in the world. Their country’s opening up, they’re becoming more and more right; if you go to the churches, the mosques, the temples, you’ll see they’re all packed. There’s certainly lots of religion going on for a “hard-line communist/atheist state.” They’ve got scores of periodicals now, whereas 30 years ago, there was maybe one. There are protests all the time in China now, about all sorts of things. There were 75,000 protests of various types last year.

Whether you’re trying to invest profitably in the region here, or are just trying to understand what’s going on, there’s a single secret that will virtually guarantee your long-term success.

And I’m going to tell you what that secret is.

Stop making the same mistake most Westerners make. Don’t waste your time trying to figure out just where China will fit into our future. Instead, try and figure out where we will fit into theirs.

That’s more than an exercise in semantics. Think of it more as an investment screen that will determine which countries from "our world" will advance enough to be relevant to China’s future. Those are some of the companies that you’ll want to go with - the companies that will profit "from" China without having to actually be Chinese companies.

The problem with trying to figure out where China’s headed is that the changes are just too dramatic. I mean, 35 years ago China was like North Korea is today; 30 years ago it was like Cuba. Now it’s like no place on the planet.

The big buildup

The first thing you’ll notice here is that China looks like one big construction zone. There hasn’t been an infrastructure boom like this one anywhere on earth since the Marshall Plan reconstructed much of Europe after that region was devastated by World War II.

Everywhere you look you see piles of building materials - bricks, pipe, cable, wiring, lumber and glass (and that’s merely a sampling) - just waiting to be installed in buildings all over this country. Some will renovate small family housing units in Beijing’s ancient and narrow hutongs, while much of the rest will give life to the modern new high-rises reaching skyward from the construction sites arranged like chessboard squares in almost every key city here in China.

It seems like the entire country is going "up," as many as 50% of the world’s high gantry construction cranes are now being used in China.

The East Coast city of Shanghai - with its modern, almost-Western atmosphere - already has more than 4,000 skyscrapers; that’s twice as many as New York City, and Shanghai has another 1,000 on the proverbial drawing board.

In the late 1980s, Beijing had only two beltway-style "ringed" highways encircling the city. Now it has six - to serve the 14.5 million people who live here.

Two decades from now, China will have more than 50,000 miles of freeways - more than US entire interstate system - and even that won’t be enough.
Incomes are on the march. Everywhere you can see Gucci, Dior and Rolex products. China’s consumers are becoming more and more brand-conscious, especially in the first-tier cities like Beijing and Shanghai but also in second- and third-tier cities, as well.

The escalation in traffic has been breathtaking, simultaneously choking the roads and the pedestrians on the sidewalks. And it’s only going to get worse.
If all these new cars were the small, economical, fuel-efficient cars you typically see in emerging economies, that would be one thing. But the growth in incomes and in wealth has enabled many China consumers to buy luxury cars, just as they buy luxury goods.

If you look at several of these brands - Audi, Buick and Hummer - you’ll get a poignant illustration of how well it pays off to become part of China’s future, and the risks of waiting for that country to become part of yours.

Let’s take a look at some quick facts that exemplify China’s economic emergence.

• China’s economy has been growing at a rate of 9.3% per year during the past 25 years, which is three times as much as the growth rate in the U.S.
• China is the world’s biggest consumer of steel, cement, coal, copper, gold and even meat. It is the number-two crude-oil consumer.

• China is also the world’s biggest market for mobile phones, with 450 million handsets and cellular phone accounts.
• Since 2002, China has been the driving force behind the big commodity boom. Prices of oil, copper, gasoline, alluminium and other raw materials more than doubled.

• The central banks of China, Hong Kong and Taiwan -- which make up the Greater China region — combined, have the largest foreign reserve in the world.

Key trends for 2008

Before we dig in detail, let me briefly tell you about the top China trends I believe we will profit handsomely this year.

• China’s exploding private sector. China has put out the welcome mat for new small businesses, waking an entrepreneurial spirit that has been buried under decades of Communist rule.

• China’s consumer spending boom. Thanks to China’s growing middle class another western trend is about to flood the streets of China…credit cards.

• China’s insatiable demand for natural resources. You may be quite surprised with what I have to say about the best way to play commodities today.

• China’s wireless market -- the largest mobile phone market in the world with over 450 million subscribers -- and growing.

China’s economy (which we hear a lot about) is still red-hot. In the past year, it's grown over 11% - more than three times the U.S. economy - leapfrogging France and Great Britain to become the world's fourth-largest economy. What you don't hear as much about is that a lot of this is coming from the private sector.

China’s exploding private sector

China’s private businesses will continue to grow rapidly in 2008 as market reforms allow the entrepreneurial spirit that has been buried under decades of Communist rule to once again flourish. And that’s exactly how it should be. The Chinese people are the real drivers of their country’s economic miracle.

In fact, China has put out the welcome mat for entrepreneurs. Today, China has nearly 24 million small independent companies -- and that number is growing 20% a year.

Much of this energy is coming from so-called sea turtles. These are U.S.-trained Chinese nationals who are being lured back home by tax breaks, high-tech business parks and government perks.

People like Zhang Xin, who became Beijing’s top luxury real estate developer. Or James Liang, a former Oracle techie who turned a $250,000 investment into an online travel giant worth $2 billion.

Most people don’t realize that China has a rich entrepreneurial tradition. This is a strong source of pride for the Chinese. For most of its long history, China was one of the great commerce nations of the world. It has been buried under a repressive regime for the last 100 years, but there is no doubt the entrepreneurial spirit and the desire to succeed economically remain a strong part of the Chinese people today. As the government continues to loosen its grip, they're getting an opportunity to succeed and they're making the most of it.

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