Don't let it get away!
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The modern China story is an amazing one. In the 30-odd years since Deng Xiaoping decided to open up the economy, China has performed nothing short of an economic miracle. Cities that were once small fishing towns are now bustling metropolises home to millions of people. Millions upon millions of Chinese have been raised from poverty.
Just the beginning
China is a country of 1.3 billion people, and the slight majority of them (674 million) still live in rural areas, but this is rapidly changing. According to the recently completed 2010 population survey, since 2000, China's cities have welcomed 207 million new residents. Of course, surveys are notoriously difficult to perform accurately, and this number also doesn't include millions of migrant workers who don't officially live in the cities.
They're coming; we better build it
All these people need homes, sewers, electricity, and phones. They also need roads, railways, and airports to get to and from home and get the goods they make out to the rest of the world.
All that requires raw materials like iron, copper, oil, and coal. Oh, and food, too. Fortunately, China knows where to get these things, and has the money to do so -- Australia, Canada, Brazil, and the African continent are rich in the natural resources China needs to build its future.
We're running out!
There is a large group of analysts who blame the dramatic spike in commodity prices in 2008 and the raw material inflation we're seeing today on supplies' failure to keep up with China's hunger.
This supertrend, they argue, is here to stay as more and more people in China and other emerging markets increase their spending power and want to live like their counterparts in developed markets.
At the same time, there are those who say things aren't as bad as they seem on the commodity front. Freak weather (floods in Australia, droughts in South America and China) and natural disasters (wildfires in Russia, earthquakes in Chile and Japan) have created special circumstances that have temporarily increased commodity prices, but things will return to normal eventually.
Who really knows?
I say it doesn't matter. Whether we can pull stuff out of the ground fast enough, there will be millions of Chinese people moving into new houses, buying things they've never had before, eating a more diverse diet, and trying to get to new places. That is as much of a given as you get. So invest for it.
If you fall into the first camp, you must believe that the currently high commodity prices are a jumping-off point, so you want to invest in the people selling dirt to the Chinese. Look to the major miners who have exposure to many different metals and geographies and who can easily shift production and investment to the lowest cost, most profitable ones.
Look to companies like the Australian behemoths BHP Billiton (NYSE: BHP ) and Rio Tinto (NYSE: RIO ) or the Brazilian giant Vale (NYSE: VALE ) . Their size means you won't necessarily hit a home run overnight, but growing long-term demand will provide strong returns for years to come.
If you are more a fan of the soft commodities, companies such as Cresud (Nasdaq: CRESY ) and Adecoagro (NYSE: AGRO ) that own high-quality farmland in Argentina and Brazil are the place for your money, as this land will become more valuable as Chinese people increase the size and variety of their diets.
I laugh in the face of inflation
If you have faith in human ingenuity, and don't think we're facing a Mad Max future, you can still profit from rising incomes in China. Companies such as China Mobile (NYSE: CHL ) and Baidu (Nasdaq: BIDU ) are bringing the information age to China. China Mobile commands 68% of the Chinese mobile phone market, but only 7% of China's mobile users take advantage of 3G technology. Baidu currently claims nearly three-fourths of the search revenue in China, and with only 477 million Internet users, there is plenty of room for growth.
Regardless of which camp you find yourself in, it is clear that Chinese consumers are going to dramatically shape the investing world for years to come. Tim Hanson and The Motley Fool's Global Gains team (of which I'm a proud member) will be landing in China in a few weeks to do some boots-on-the-ground research in order to find more ways to profit from this trend. To get our notes and thoughts during the trip, just enter your email address in the box below.