Market Overview

Common Questions About the Current State of Affairs in China

  • Official Name: People's Republic of China
  • GDP and global rank (2010): $5.93 Trillion(US) - ranked 2nd in the world.
  • Per Capita GDP and rank (2010): $7,544(US) - ranked 94th in the world.

How did China get to where it is today?

In 1978, China's communist regime introduced economic reforms which they named “Socialism with Chinese characteristics” when it became apparent that their economic performance was severely lacking compared to neighboring South Korea and Japan. These reforms opened up the nation to receive foreign investments and allowed entrepreneurs to set up new businesses. As a result, China's economy has seen around 10% growth per year since the changes were implemented.

Where are they today?

As a result of the reforms, hundreds of millions of Chinese citizens moved out of poverty and in to the working class. In 2010, China's GDP surpassed that of Japan, making it the second largest economy in the world after the United States.

China is extremely rich in resources, including the largest deposits of minerals (ore, iron, steel, aluminum etc.) in the world.

The country has done a good job developing numerous industries, which include the manufacturing of machinery, data processing equipment, toys, clothing, transportation equipment, satellites, space launch equipment, and mining-related products. In 2010, exports totaled $1.58 trillion(US) - the largest recipient being the United States.

Skyscrapers now dominate the skyline in major cities like Beijing and Shanghai. The “Shanghai World Financial Center” is the 4th largest building in the world, measuring 492 meters high, and is home to some of the largest major international and Chinese financial firms.

China is positioning itself to become the global leader in fields such as engineering, construction, banking, and clean energy. Chinese engineering firms have been awarded multi -billion dollar international contracts ranging from the development of high speed rail lines in Brazil, ultra high end luxury apartment complexes in Saudi Arabia, and copper mines in Congo. In fact, part of the San Francisco-Oakland Bay bridge within the United States is being manufactured and assembled entirely in China and will be shipped 6,500 miles across the Pacific Ocean for final assembly. The project was secured by Shanghai Zhenhua Port Machinery Company, which is the world's largest manufacturer of cranes and large steel structures.

OK, sounds good. But how can I invest?

Suggested ETFs

iShares FTSE/Xinhua China 25 Index Fund (NYSE: FXI): Holds some of the 25 largest companies in China, which comprise the FTSE China 25 index. These firms are multinational entities with solid reputations. For example, one of the index's holdings, China Construction Bank, maintains offices in major financial hubs, such as Hong Kong, New York, Tokyo, and Singapore, and holds over $1 trillion (US) in assets.

Another global giant listed in the index is China Shenhua Energy Company (CSEC) – the largest coal miner in the world. Coal accounts for 70% of China's energy needs, and CSEC is forecasted to increase output to 370 million tons in 2011.

Global X China Consumer ETF (NYSE: CHIQ): Holds 40 of China's largest corporations, which conduct business operations in the consumer sector.

As the population of China continues to experience economic prosperity, the consumer sector is well-positioned to see increased revenues in the future. The ETF is well diversified and includes companies such as Hengan International, which is the largest producer of sanitary napkins and baby diapers in China.

Other examples of companies in the index include Want Want China Holdings, the country's largest maker of rice cakes and flavored milk, and DongFeng Motors, one of several Chinese-based automakers scheduled to deliver fully electric (low-cost) vehicles to the marketplace by 2015.

Guggenheim China Technology ETF (NYSE: CQQQ): Holds 41 of the largest China-based companies that define themselves as being part of the information technology sector. The fund holds a diversified mix of small-, mid-, and large-cap firms.

One company in the index is Tencent Holdings, a provider of online advertising and mobile phone services. Tencent has over 600 million current users. It is the third-largest Internet company in the world behind Google (NASDAQ: GOOG) and Amazon.com (NASDAQ: AMZN.)

Another company in the ETF is Sina Corp. (NASDAQ: SINA), an online media company that operates its own Chinese version of Facebook/Twitter, which happens to be the number one most viewed website in the country (140 million people use sina.com to interact with each other, as well as follow Chinese celebrities, athletes, and other people of interest).

China Mobile (NYSE: CHL): The world's most valuable telecommunications company. China Mobile has over 600 million subscribers and brought in $73 billion in revenue in 2010. The company is set to spend billions of dollars to improve its infrastructure, and create over one million Wi-Fi hot spots. Moreover, China Mobile holds over $50 billion cash on its balance sheet and is well-positioned to make substantial international investments.

PetroChina Company Limited (NYSE: PTR): China's largest oil producer. When oil peaked late last year, PetroChina became the world's only company valued at over $1 trillion, as measured by market capitalization.

Additionally, PetroChina is currently Asia's most profitable company, earning $21 billion in profit in 2010. PetroChina holds interests in oil fields all across the world, and recently invested $5.4 billion in Encana Corp. (NYSE: ECA).

PetroChina is truly a global giant and is in a great position to profit from the growing oil and energy needs of the Chinese population for many decades to come.

Baidu (NASDAQ: BIDU): A Chinese website that is the Chinese alternative to Google and Wikipedia, baidu.com offers a search engine, images, audio files, and a community-based encyclopedia.

Baidu is the first Chinese company to be included in the NASDAQ 100 index (NASDAQ: QQQ). Baidu.com handled over four billion searches in the 4th quarter of 2010 alone and is ranked as the sixth most viewed website in the world.

Conclusion

It is not a matter of if< China will become the world's largest economy; rather, it is a question of when. Some economists have predicted that this will occur as early as 2020. Given this fact, investors should seriously consider adding Chinese companies and/or ETFs to their portfolio, especially since many Chinese companies already rank amongst the largest in the world despite the country's relative lack of development.

Posted-In: ChinaEmerging Market ETFs ETFs

 

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