Printer Friendly

Dear Fellow Investor,

I've just returned from a two-week trip to Shanghai, China, and I'm very excited to share my observations about the Chinese economy with you.

What's interesting to note is that the rumors about China's economic downturn are greatly exaggerated. In fact, the Chinese economy is chugging along and holding up relatively well -- despite the current global economic slowdown.

Now, that's not to say that the Chinese economy has been unaffected by what's happening around the world. Because it has. There is still a general slowdown in export-related manufacturing and real estate development in the country. In November, exports fell for the first time in seven years, imports plunged and manufacturing contracted. And industrial-production growth dropped to its weakest pace in nearly 10 years.

While this has aided in the slowing China's steamy 11.4% GDP growth to 9% this year, we need to remember that exports are no longer that significant to China's economic growth. Domestic investment and domestic consumption play a much more key role in China's robust economic growth, and will continue to do so in 2009.

Supporting the Chinese Economy

Domestic consumption, in particular, has supported the Chinese economy greatly during the current global economic slowdown. And I observed this firsthand while I was in Shanghai, as the major department stores, shopping centers and my favorite restaurants were still packed with customers, mostly with increasingly affluent locals.

So, Chuppies are still spending money, and that money is flowing into many local businesses. And China's recent release of retail sales for November coincided nicely with this observation. The official data showed that China's retail sales grew 20.8% year on year last month.

Considering the global slump and the fact that China's economy has slowed in the past nine months, nearly 21% growth is an impressive figure. And China's retail sales will likely remain robust as businesses continue to cater to domestic consumers.

Now, while China's domestic consumption remains strong, there's been a significant switch in how the Chinese are spending their hard-earned money. Previously, newly-rich locals -- real estate developers, fund managers, foreign expatriate executives and export factory owners -- enjoyed flaunting their wealth at high-end restaurants and private clubs. But now that these individuals took substantial hits during the global financial and economic crisis, high-end luxury spending has slowed down quite a bit in China.

As a result, the Chinese are growing increasingly value conscious. They're rather have dinner in a mid-range restaurants that cost between $30 and $50 per person, rather than shell out $50 per person at a high-end restaurant. I saw this firsthand in Shanghai, as many high-end restaurants sat relatively empty while mid-range establishments were drawing in customers.

So, these businesses that are catering to China's domestic consumers will not be heavily affected by the global financial crisis.

It's Time to Buy Chinese Companies

As I said above, China's strong consumer demand will help support the country's economy in the New Year. But in addition to domestic consumption, China's aggressive government policies will also support the Chinese economy while the rest of the world contracts.

In fact, with China's proposed $586 billion stimulus package, recent tax cuts, increased government spending, and new pro business policies, I think China's economic slowdown will only last until the second quarter of 2009. That's because the Chinese government has made stimulating economic growth is its top priority for 2009.

So, as we discussed last week, I'm expecting the Chinese economy to rebound in the second half of the next year, with Chinese stocks trending higher off the bottom that they set in late October. That's because equities tend to rally six months before the economy really picks up.

And the best way to profit from the strength of the Chinese economy and upward trend of the Chinese markets is to invest in companies directly in line to profit from government policies and intervention. That means some of the top choices for investment right now are China's state-owned enterprises (SOEs) -- a topic that we discussed in depth last week.

Since the October 27 bottom, many of the SOE's I recommend in China Strategy have jumped significantly higher, including:

• China's largest airline, up 52%
• China's leading wireless service provider, up 51%
• China's number-one insurance provider, up 43%

And that's just the beginning of the profits that we'll see in these companies. As China's economy gains strength in the New Year, we'll see these stocks move even higher. That's why in the upcoming January China Strategy issue, I'm recommending another SOE for subscribers to take advantage of the Chinese government's support.

This company has leapt a whopping 88% since the Chinese markets bottomed on October 27. Now, that's a move that we can't ignore!

I don't want you to miss out on the opportunity that this company offers, or the potential of the other companies on my China Strategy buy list. That's why I'm providing you with a special offer to join China Strategy today. For just $99, you'll receive all of my up-to-date insights on the Chinese economy and the best way to profit from its strength in 2009.

That means if you join today, you'll receive 52 weekly updates and 12 monthly issues for just $99. So what are you waiting for? Join China Strategy today!

Happy Holidays!

Robert Hsu