Dear Fellow Investor,
On Monday, the Chinese government announced that economic growth in the country had indeed continued to slow during the third quarter. The economic data showed that China's third-quarter GDP growth was 9% year-to-year, which is the slowest pace since June 2007.
| Another Blowout Quarter! |
| Last night, China's leading search engine reported third-quarter earnings. And let me just say, it was another blowout quarter. The company announced that its third-quarter profit jumped 91% and revenue rose 85% over the same period last year. The strong results were due to an increase in online marketing. The company currently handles more than 60% of China's Internet search market. Add in the fact that China has the largest number of people online in the world, and you can see how this company continues to post solid quarters. To learn how you can profit from China's growing Internet population, join China Strategy today. |
If you have been reading my Inside China Dispatch or are a China Strategy subscriber, then this news release shouldn't have been a surprise to you. All year I've stated that China's economic growth was going to slow to the single digits this year after posting 11.4% growth last year.
One of the drags on the Chinese economy right now is a slowdown in the country's export business. Chinese exports grew 21.5% year-on-year in September, but I'm expecting the sector to decline further as the global economic slowdown reduces demand from Europe and the U.S.
Now, exports actually only account for 5% of China's GDP. But recently, exports have played a key role in China's booming economic growth, and as demand slows from developed nations, we'll likely see the slowdown impact China's growth.
While this seems concerning, it's important to keep perspective -- of the world's 20 largest economies, China's 9% economic growth remains the fastest. Plus, the Chinese government is already taking steps to stimulate economic growth and insulate the Chinese economy from the global economic slowdown.
Stimulating Economic Growth
Along with a slowdown in exports, the Chinese real estate sector has also weighed on China's economy this year. That's why yesterday evening China's Ministry of Finance (MOF) announced three new stimulus policies for the property sector that will go into effect on November 1. These policies include:
- 1) Lower property transaction taxes (deed tax, stamp duty and LAT);
- 2) Lower the mortgage rate floor and minimum down payment requirement to 20% (down from 30%) for first-time homebuyers;
- 3) And accelerate the development of public rental properties.
This was a strong move by the Chinese government, and I think these new policies will help prevent a sharp sell-off in the Chinese real estate sector.
In addition, China's MOF presented several other measures to stimulate economic growth, including increased VAT tax rebates for 3,486 exports products, new infrastructure projects, a government grain purchasing price increase and an increase in government purchases of low-end housing for the poor.
These bold moves show that the Chinese government is staying proactive and not sitting on its hands when it comes to the economy. Chinese policymakers are will take necessary action to combat the current global economic slowdown.
Going Forward
These aggressive steps also show that the Chinese government realizes that in order to maintain strong economic growth, it must stay focused on consumer sectors. China has the world's largest population -- 1.3 billion people -- and also the biggest potential consumer market.
Education and Internet e-commerce, in particular, will be strong drivers of growth -- the Chinese place a strong emphasis on a solid education, and China has the largest Internet population in the world. These two sectors proved their worth this week, as China's leading companies in both areas announced blowout quarters.
And my China Strategy subscribers are already well positioned to take advantage of these two sectors strength. We're invested in China's leading education services company, which beat analysts expectations by two cents per share, and China's number-one search engine, which beat analysts' estimates by nearly 20 cents per share. I'm expecting these two sectors to remain resilient to the current bearish market condition. To receive my full advice regarding these two Chinese companies, join China Strategy today.
All of the governments efforts combined with strong domestic consumption should keep the Chinese economy growing at a robust pace through 2008 and in 2009. The International Monetary Fund estimates that China's growth may expand to 9.3% next year, while the U.S., Japan and European countries post growth of 0.1%, 0.5% and 0.2%, respectively.
Now, while I also expect China to outperform many countries again next year, my estimate is a bit more conservative -- I'm expecting growth to slow to 7%. But as I said above, this a much faster pace than other countries around the globe, and the Chinese government is focusing on stimulating economic growth -- something that a lot of other governments have lost sight of as of late.
That's why it's more important than ever to be investing in countries showing economic strength despite the global economic slowdown. That's why I believe China will continue to offer the best investment opportunities through the end of the year and in 2009. And knowing which sectors in the Chinese economy will be resilient to the global economic slowdown -- like education and Internet e-commerce -- will be the key to profits in the current market environment.
To learn more on how you can profit from China's sustained economic growth during the global economic slowdown, join China Strategy today.
Robert Hsu
