Headlines about China's economy are generally singing dirges these days:
- "Factory Slump Puts China on Verge of Recession"
- "China's Economic Certitude Crumbles"
- "China Shares Drop as Economic Woes Deepen"
- "China: Not a Financial but an Economic Crisis"
- "China's Economy Has Conditions to Maintain Steady and Relatively Rapid Growth"
I'll bet you can't guess which article comes from the Peoples' Daily.
Yes, things are bad
China currently faces internal strife, a growing disparity between the rich and poor, overbuilding, environmental crises, inflation, a collapsed stock market, bad milk, and a dramatic decrease in the amount of time citizens can spend in Macau, all of which clearly fall under the category of things that are "not awesome."
Things are so bad in China that its gross domestic product growth rate may fall from double digits to the dowdy level of 8%. Eight percent, by the way, is a level at which the United States is unlikely to ever grow again. It can't. Our economy is simply fully developed. Thus the sobriquet "developed economy." I know, not exactly catchy.
China, on the other hand, has returned to world prominence through a 30-year economic boom whose speed and breadth is unparalleled in the history of mankind. China went from global economic irrelevance in 1980 to the country to which the United States is most vulnerable during this economic crisis, for the small reason that China holds $580 billion in U.S. Treasuries.
An American economic slowdown will hurt China, but a Chinese economic slowdown will similarly hurt the United States, since China is the third-largest destination of American exports, at more than $60 billion in the past 12 months.
But that means things are good … for investors
It's easy to be gloomy about prospects in China. Its stock market is down nearly 70% on the year, factories are closing, and its housing market is a shambles.
But did you catch that first part? The Chinese stock market is down more than 70%.
As part of our Motley Fool Global Gains investment service, we've taken a few trips to China now to see its economic development firsthand. Last year we came back intrigued, but this summer we came back excited -- because the market had dropped and there was a lot more value available.
Since then, China's market has been priced as if it will never grow again. Right now you can buy fantastic Chinese companies such as China Mobile
What the market is missing is that the seeds of the current downturn in China were sown by the rapid growth it enjoyed over the past decade. There has never been a rapid growth story, ever, that didn't include some turbulence. It happened during the United States' Industrial Revolution, it happened with Japan -- heck, it happened with McDonald's
All of the headlines show China sitting at a crossroads. But the reason I have faith in China is that it has historical proxies. Since 1970, with the exception of a few OPEC members, only four economies have made the transition from emerging to developed markets (meaning their per-capita incomes exceed $15,000 per year): Taiwan, Singapore, Hong Kong, and South Korea.
These four economies have two things in common. First, they have few natural resources; and second, they are dominated by Chinese values and the traditional Chinese work ethic. Mainland China is different only because it got a later start.
There has never been a better time to buy China
These historical precedents are why the wholesale abandonment of Chinese stocks is so remarkable. There's no place on Earth that is a surer thing to become a mercantile success.
This isn't to say China won't have its share of failures and abuses -- there will be fortunes lost in China, just as they have been lost everywhere. But the recent market downturn gives investors a bit of a do-over. We now have the ability to buy into great Chinese companies at the beginning of the Chinese Century, at prices that would make you think that great companies such as Aluminum Corp. of China
But they aren't. No way, no how, even though things may be bad for a while. But when the market prices for a hurricane and the only thing that's coming is a rainstorm, that spells opportunity the likes of which we may never see again.
At a time like this, when confidence comes dirt cheap, my Global Gains team and I are aggressively looking for choice opportunities in China, as well as in other markets. If you'd like to see what we're recommending now, click here for a 30-day free trial. There's no obligation to subscribe.
Bill Mann bu shi wen chi doufu. Seriously, I can't believe you asked that question. Bill owns shares of McDonald's and Guangshen Railways. Guangshen Railways is a Motley Fool Hidden Gems Pay Dirt recommendation. Baidu.com is a Rule Breakers recommendation. The Motley Fool's disclosure policy has nothing in common with Elvis Presley.
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