The Rise Of Asia Led By China – What The Experts Don’t Know!
May 4 | Posted by Mario Cavolo | Inside Asia, Inside Trader Highlights
Every time I hear so-called experts and veterans in their attempts at predicting an economic crash or bubble-burst in China, I shake my head at the depth of their ignorance and arrogance. While that may seem quite bold, let’s understand together how this possibility is very much an outlier rather than a high probability. China today is essentially in the same position as the U.S. was 40 years ago. That doesn’t mean economic cycles won’t give us quite the roller coaster ride over the coming years but the fundamental core remains. Asia is expanding and that expansion is being led by China. It is unprecedented in world history. The domestic expansion of China is occurring with a strength grounded in practical reality which outsiders, especially Americans, on the far side of China’s mysterious great wall continue to filter out of their minds. What practical realities are you referring to, one might ask?
Here we find a selection of key economic and societal indicators to help us better understand how wise it may be to doubt China’s naysayers.
Record Numbers of Chinese Students Studying Abroad – According to recent media reports, “China has the largest number of overseas students in the world, with a record 1.27 million studying abroad at the end of 2010…up 24 percent over 2009…more than 90 percent of the students chose to study in the top 10 destinations – the United States, Australia, Japan, the United Kingdom, South Korea, Canada, Singapore, France, Germany and Russia. Dozens of US colleges and universities are seeing a surge in applications from students in China.”
Let’s get real. What do these students need lots of in order to study abroad in universities across the globe? Money, and lots of it. Universities across Asia, Europe and North America are certainly not handing out scholarships begging them to come. The surge in overseas Chinese students is another perfectly clear indicator of the rise in income and wealth of the China’s middle and upper class.
Another practical, leading economic indicator comes from the automobile market.
Last week, we were invited to attend the 14th annual automobile show which included manufacturers, distributors and suppliers throughout the industry. Imagine over a dozen exhibition halls each the size of a football stadium filled with people and you can perhaps begin to understand.
General Motors (GM) Plans to Double Auto Sales in China This in from AP “Some 13.7 million passenger vehicles were sold in the country (China) last year, when sales grew by a third over 2009. GM plans to roll out 60 new and upgraded models in China in the next five years, almost half of them Chevrolets and Buicks…” China, now the world’s largest car market, sold over 13.7 million cars last year.
I’m not praising the glories of flooding the world with a few million more four-wheeled gas guzzlers. Like it or not, the China automobile market is still in its infancy, a reality which greatly supports related sectors across the entire domestic economy, another practical economic indicator to note.
Next on the list, forgetting for a moment the record-breaking sales of tablet computers, let’s consider China’s 600 million mobile phone users.
(April 21, 2011, BBC News) China Mobile (CHL) surpasses 600m subscribers China Mobile, the world’s largest mobile operator, has surpassed 600 million subscribers after increasing its number of customers in rural areas. The company added 16.8 million users between January and March, it said. China Mobile also said its profits climbed 5.4% to 26.9bn yuan ($4.1bn; £2.5bn) in the quarter, compared with the same period a year earlier.
It’s even harder to imagine that with 600 million mobile phone users, there’s still another 200 million to go. subscribers are being added at an average rate of 5 million per month according to China Mobile, numbers that make any Western market drool with envy. With the integration of mobile to the Web 3.0 online experience, the growth in this and related sectors will continue at unprecedented and staggering levels.
ADDITION Let’s add further confirmation that views on China’ banks are far too pessimistic. Surely there is a threat of lower quality loans on their books coming to roost in a downturn but the risk ratio is far lower than U.S. banks.
According to Bloomberg News, “ICBC’s first-quarter profit is 49 percent more than that of JPMorgan Chase & Co. (JPM), the most profitable U.S. bank… The article also states, “Net income at ICBC, the world’s most profitable lender, climbed 29 percent…to 53.8 billion yuan ($8.3 billion). Bank of China, the nation’s third largest, reported a 28 percent increase while Bank of Communications Co., the fifth largest, said earnings rose 27 percent.
Lastly, let’s take a look at my ongoing birds eye view domestic economy indicators which few others seem to weigh highly enough.
1. China’s lower and middle class society today lives in 150 million mortgage free homes now worth an average of $100,000 ((650,000rmb) each, totaling USD $15 TRILLION of mortgage free equity. The sector of home ownership I am focusing on here does not include the bubble-high priced luxury property market which exists in China’s 1st tier cities including Shanghai, Beijing, Shenzhen, Guangzhou, and Hong Kong. If Chinese middle-class homeowner masses in cahoots with the banking industry starts borrowing on those homes even at only 20% of equity, that will place an additional USD $3 TRILLION into the rising domestic economy. Even with an economic slowdown, there is no reason to believe that this property sector will drop in value more than 10% from current levels, if at all.
2. Economic analysis of China almost always discounts the $2-$4 TRILLION grey cash economy which exists here. The cash only grey economy is massive economic power and security completely separate from any official reported GDP and other economic statistics available on China.
3. Talk of China’s ghost towns and empty apartments are utter nonsense. China is the most rapidly urbanizing country in the world, with millions of people moving from the countryside into the city in an expanding society. This is a socioeconomic trend that will continue for many more years. Keeping that backdrop in mind, one also needs to understand that empty apartments are a common asset store, just like a bar of gold or stock, in Chinese culture. It is normal for apartments to be bought as a concrete shell (to be decorated by the owner as they wish) which is something they may not do for a couple of years, often because the surrounding area is still under construction. The market is certainly not perfect. Real estate development failures certainly do exist, excess supply is not a bizarre outlying phenomenon, but to hype China’s ghost town phenomenon is deeply misguided. There are a whopping seven ghost towns, small communities in a country expected to have over 200 cities with a population over one million in the next ten years. Doesn’t seem like much of a weighty economic indicator does it?
The last place anyone should be expecting an economic crisis is in the rise of Asia led by China. Discern practical reality and discern when the purpose of a media story you have come across on China depends too highly on rhetoric rather than practical reality.
Tags: Asia, Bank Of China, Bank Of Communications, China, China Mobile, China Property, CHL, General Motors, GM, ICBC, JP Morgan Chase, JPM
