Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

One of the Hottest Areas for Your Capital

Wednesday, August 18th, 2010
By for Profit Confidential

China has overtaken Japan as the world’s second largest economy, and, in about 15 years, China is expected by pundits to become the world’s largest economy. Clearly, in Asia, it has become a tale of two cities. While China continues to report double-digit GDP growth in spite of concerns of some slowing, Japan reported a weak 0.1% rise in its second-quarter GDP and continues to be impacted by decades of stagnant growth.

While Japan has faltered over the past two decades, China has used the opportunity to put its massive cheap labor workforce to use and create colossal manufacturing capacity for the world’s manufacturers looking for cheap labor and a lower cost to produce goods.

China has developed into a dominant world economic power as well as a basin for incredible and sustained growth across many sectors from industrial, to mining, to technology. If it is saleable and in demand, then you know that China has the consumer market for it.

China has a population of about 1.3 billion people; about five times the size of the United States. The size of the middle class is over 300 million and this is expected to grow exponentially, as migrant workers have more disposable income. The current per capita income is just below $4,000 a year, but it has more than doubled over the past few years and wages appear to be heading higher. With this comes more spending. At the present time, only a small fraction of China’s GDP is driven by consumer spending, compared to about 70% in the U.S. China wants to drive consumer spending long-term.

The sheer size of the country’s middle class is mind-boggling and clearly reflects the amazing potential there. The World Bank estimates that, within five years, there will be 542 million middle-class consumers in China. I have heard estimates of up to 700 million!

Can you hear the register? Gartner Research estimates that China will represent 72% of the world’s growth within the next 20 years. According to the Carnegie Endowment for Peace, China’s economy will surpass the United States by 2035 and grow to be twice as large by 2050.

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While all areas are expanding in China, there are several key sectors.

An area that is growing at an incredible rate is the cell phone sector, where growth is enormous and there are currently more than 770 million users. That’s nearly more than the population of the United States, the European Union, and Canada combined!

Another strong area for growth investors is the Internet in China. Many pundits still view China as having more upside potential in the Internet space, as the country’s current penetration rate of 16% of the population is lower versus the average of 19% worldwide, and the U.S. penetration rate at a whopping 71% (source: The Pew Internet and American Life Project).

China has become the epicenter of the Internet world, with Internet demand growing at a staggering pace. The number of Internet users in China is tops in the world, with about 404 million on the Internet, according to the State Council Information Office in China. According to BDA China Ltd., China’s Internet usage could reach a staggering 490 million by 2012. In addition, about 58% of Internet users in China or about 233 million of 404 million Internet users roam the Web via their cell phones, according to the State Council Information Office. These are massive numbers and point to the staggering growth in China.

In the first quarter of 2010, e-commerce in China was $149 billion, according to iResearch Consulting.

While there are some short-term concerns, longer-term, you need to have some capital in China.

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George Leong - Financial Planner, ConsultantGeorge Leong, B. Comm. 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. 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. Add George Leong to your Google+ circles

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