You Need to Be in China

China’s economy surged 10.7% in 2006, the fastest rate in a decade, as Chinese exports continued to flood the world markets. A report by Goldman Sachs predicts China’s economy could grow to a staggering $3 trillion by 2008 and will inevitably surpass Germany into third place, trailing only the economies of United States and Japan. China’s total economic output in 2006 was $2.7 trillion, according to the Chinese government. Germany was higher at $3 trillion but its economy is growing at a mere 2.5%.

The Organization for Economic Cooperation and Development (OECD) estimates China’s GDP growth at 10.6% in 2006, up from the previous 9.7%. For 2007, GDP growth is expected to slow moderately to 10.3% but then rebound to 10.7% in 2008. The positive in the continued strong GDP growth is the manageable inflation, which the OECD predicts will come in at 2.2% in 2006, compared to the previous forecast of 3.4%. For 2007, inflation is predicted to fall to 1.8% and then rise moderately to 2% in 2008. The report by the OECD suggests China must be careful not to kill off the economic growth due to the country’s stricter lending rules that are making easy money more difficult to come by.

In a report released by the World Bank, China’s GDP growth is estimated to run at 10.4% in 2006 and then decline to 9.7% in 2007, up from the previous estimate of 9.6%.

There continues to be no doubt in my mind that China will provide exceptional growth opportunities for companies and investors alike in the coming years. You need to be there.

Make no mistake about it, China’s economy may be slowing, but the projected growth there is still the envy of the world. On the other hand, as an investor, you also need to watch the slowdown as it could place some pressure on Chinese companies or U.S. companies doing business in China.

Chinese stock markets continue to do well versus North American markets. The Hang Seng Index in Hong Kong continues to trade near its 52-week high. The more risky Shanghai Composite Index has more than doubled from its 52-week low.

As an investor, you need to have some investments in China either via American Depository Receipts (ADRs) trading on U.S. exchanges, Chinese-focused mutual funds or China Exchange Traded Funds (ETFs). There are still vast growth opportunities in technology and industrial companies that will continue to benefit from the robust economic growth in China.