Orderly Economic System In China
Tuesday, April 4th, 2006
By George Leong, B.Comm. for Profit Confidential
A trend that I expect will continue going forward is the explosive economic growth that is evident in China. The government, while operating under Communist rule, is clearly backing and pushing the economic renewal that has seen China rise to become the world’s second largest economy based on GDP. The country is now a member of the World Trade Organization and has its sights on using its cheap labor force and costs to sell its products worldwide.
Within the country, the growing middle class and mass migration from the countryside have created a massive consumer hungry society that would probably have made Mao quite agitated to say the least.
But the industrial and economic revolution is on. China, unlike the former Soviet Union, has created an economic system that is working. After seeing the failure of the Soviet Union in managing its economic development to a modern system, the Chinese learned a valuable lesson.
Russia, under Boris Yeltsin, was a mess. Opening up the country’s economic system but giving away its massive assets in an unstructured manner became commonplace at that time. The issuing of company vouchers under the former Russian regime was foolhardy as the majority of Russian citizens had no concept of what to do with the vouchers. They were meant to be exchangeable for shares of Russian companies, but many of these companies were non-operating and had no valid valuation.
But, some who were smart or cunning enough recognized the value of the 40 million vouchers issued and in ingenious manner began to buy vouchers in the open market for very little. In the hands of many, the vouchers were essentially worthless but some were able to accumulate millions of vouchers and then exchange the vouchers for control of asset rich Russian companies.
Of course, after Yeltsin left, new president Vladimir Putin came in and, after careful review, deemed the giving away of state control assets illegal. Putin is going after those that benefited greatly from the suspect transactions.
The moral is China did it right. The government continues to control what happens in Chinese business. While this may be suffocating, it does allow for an orderly economic system under Communist rule.
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Tags: china, China's GDP, chinese economy
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George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.
