China: the Numbers Don’t Lie

Chinese stocksThe majority of the news is on Ireland and the fear that the debt issues there could spread throughout Europe and further dampen growth there.

But I have talked enough about Europe and will swing my focus to China—my favorite growth region for growth investors looking to increase portfolio returns.

The numbers don’t lie.

The Organization for Economic Cooperation and Development (OECD) predicts that China will grow its economy by 9.7% in 2011 and 2012, which, while lower than the previous rates, is well above the global average of 4.2% and 4.6% in 2011 and 2012, respectively. In the third quarter, China’s GDP increased 9.6% on higher inflation.

Given the high inflation of 4.4% in October, which is above the country’s top limit of 3.0%, China wants to slow down its growth to between 8.0% and 9.0% over the next five years and focus on quality, according to South China Morning Post.

The country’s foreign direct investment (FDI) surged 7.9% in October to $7.66 billion, according to the South China Morning Post. FDI in the first 10 months of the year amounted to $82.0 billion, up 15.7% versus the same period in 2009.

In my view, the key in China will continue to be dependent on the rapid growth of the country’s middle class. In a recent research finding, Credit Suisse predicted that the household wealth in China will double to $35.0 trillion by around 2015, based on achieving sustainable GDP growth at or near the current levels.

There are many areas of growth in China; whether we’re talking commodities, industrial, auto, technology, travel, or education, the list is broad.

Take a look at China’s cell phone sector, with over 770 million users. That’s nearly more than the population of the United States, the European Union, and Canada combined!

These are exciting times for China’s telecommunications market, as the regulators, in an effort to increase competitive powers, decided to allow the operation of three major carriers in China as of September 2008. The introduction of the next generation 3G and 4G networks will also help to drive additional growth in China’s cell phone market, as there will be a need for new phones. China will spend $40.0 billion over the next two years on its new third-generational (3G) mobile communications networks, according to the Ministry of Industry and Information Technology.

The top mobile company in China is China Mobile Limited (NYSE/CHL). With market capitalization in excess of $200 billion, the company is massive. For instance by comparison, AT&T Inc. (NYSE/T) is the largest mobile provider in the U.S., with market cap of $166 billion. Verizon Communications Inc. (NYSE/VZ) has market cap of $92.0 billion.

Chinese stocks listed on both U.S. exchanges and across the Pacific in China are again under some selling pressure, after the benchmark Shanghai Composite Index (SCI) failed to hold above the key 3,000 level. At one point, the SCI was down only about four percent for the year, but it has since retrenched back to a 12% loss.

The volatility in Chinese stocks and the uncertainties with the Chinese government make it nerve-wracking, yet I continue to be bullish on China and take opportunities to buy and accumulate on dips in Chinese stocks. Longer-term, you will not be disappointed.