Yet Another Strong Year

News came out earlier this week that China will report another strong year of economic growth in 2006, continuing a rising economic growth trend that saw GDP growth of 9.90% in 2005.

 According to a report by Reuters, Qiu Xiaohua, deputy head of the National Bureau of Statistics in China, said “China’s economy won world recognition and came top of the class in 2005.” Adding “I think China will be a star pupil again this year.”

 The comments should not be a surprise to anyone, as China has been on a torrid growth phase, eager to satisfy a surging middle class of about 300 million citizens. The migration of people from the poor countrysides to the various economic development zones that are quickly rising in the south has helped to create the extraordinary economic boom in the country.

 In the modern and trend setting city of Shanghai, we are seeing a massive building boom that will eventually see about 5,000 new buildings if the ambitious plan comes to fruition.

 In everyday life, we are seeing riches emerge beyond what would have been expected only a decade ago. In the country, the move to the new economic structure continues to attract significant foreign investment from the United States and Europe.

 China’s GDP is already ranked second in the world with an estimated 2005 GDP of $8.158 trillion, second only to the United State’s $12.37 billion. When you really think about it, it is quite impressive that China, in only a small period of time, has emerged as a leading world economic power to be reckoned with. If the growth continues on the current trend, it will eventually surpass that of the United States, albeit it still has a ways to go.

 The risk also is the always-potential interference by the Communist Party in business matters. Businesses, specifically publicly traded companies in China and those listed in the United States, are vulnerable to changes in economic policies that can take effect with little warning. This is the risk of investing in China. Having said that, it is still a land of vast investing opportunities investors should look at. But, if you don’t like the risk, you can always invest in U.S. multinationals that have a major exposure in China. In this way, you are less vulnerable to the political risk.