1. Shanghai Is Not What You Would Expect When You Visit
the World's Largest Emerging Market
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Shanghai Is Not What You Would Expect When You Visit
the World's Largest Emerging Market
Author: aspenIbiz Mike Farrell
In 1982, early in my Management Consulting career with Deloitte (a Big 4 Accounting and
Consulting firm), I made my first to trip to China. I was on an engagement in the Middle East at
the time and our client was Saudi Arabian Airlines. I was based in Jeddah, Saudi Arabia
however worked with clients and traveled extensively throughout the region.
As part of the project, I had the opportunity to visit Hong Kong and Beijing however every one
told me to avoid Shanghai as it was dreary and in the dumps. Today, Shanghai is not the kind of
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2. city most expect to see when they visit the world’s largest Emerging Market.
Amazingly, the Pudong area, which is ground zero of the hustle and bustle of Shanghai and
representative of the China Dream, did not even exist 20 years ago.
Construction on the New Open Economic Development Zone, which has grown to become
China’s pulsing financial and commercial hub, only really began in the early 1990s, right around
the time the nation’s economy embarked on a two-decade long, double-digit annual growth rate
transformation.
This (the unapologetically capitalistic city seems to scream out) is what, Made in China, built for
us.
While the Developed world spent the better part of the last few decades buying knick-knacks
they didn’t need with money they didn’t have, China Inc. got busy both producing those same
products, and lending the world’s consumers the money with which to buy them. The result is
one of the largest trade imbalances in modern economic history. At a staggering $2.4 trillion, the
Middle Kingdom’s foreign reserve stockpile is by far the largest in the world. And, although a
not-insignificant $900 billion of those reserves are held in steadily depreciating greenbacks (not
to mention a large euro holding), the Chinese are wasting no time converting those paper cash
piles into tangible asset stakes.
Also, China has been on a resource-buying binge over the past ten years, inking deals with
major mining companies from Africa to Australia, South America, The Middle East and all over
Asia.
Just last month China signed more than $8.8 billion of new commercial and mining deals with
resource giant Australia, despite its southern neighbor’s onerous new resource profits tax laws.
The Middle Kingdom’s voracious industrialization inhaled around $41.7 billion worth of
Australia’s minerals in 2009, including almost $20 billion of iron ore and concentrates.
Last year China also became Brazil’s number one trading partner when it agreed to lend $10
billion to Petrobras in return for guaranteed oil supply over the next decade. I invite you to read
here http://bit.ly/9TXkMF my recent article “Energy is One of the 5Es of the Evaluation
Framework” that contains a discussion about this transaction between Brazil and China. Other
projects between China and its South American BRIC counterpart included a $5 billion steel
plant at the Acu port in Rio de Janeiro. This deal represents China’s largest ever investment in
Latin America’s richest resource economy and its biggest foreign steel-plant investment.
The world’s fastest growing economic superpower is also looking closer to home in an effort to
feed its unwavering appetite and to divest itself of paper promises.
“Central Asia is rich in mineral resources, particularly rare metals, copper and gold that China
needs for economic growth,” President Hu Jintao announced on a recent visit to Central Asia,
where he signed gas and nuclear agreements and promised cooperation in port construction
and transportation infrastructure. I invite you to read here http://bit.ly/d3Of2k my recent article
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3. on China and rare earths.
Conspicuously absent from these and a slew of other high profile deals were the “emerged”
markets. While the Petrobras deal was going down, for instance, politicians in the US were
eagerly handing out hundreds of billions of other people’s dollars to Goldman Sachs (via AIG),
and bribing its citizens to purchase new kitchen appliances, most of which were probably made
in China anyway.
Of course, all this stimulation comes at a terrible cost. Not only must the US economy swallow
the opportunity cost (of the goods and services that might have been produced had those
trillions not been siphoned off to bailout the nation’s failed banking, insurance, and auto
industries), it must also contend with seemingly uncontrollable debt loads.
Barely 9 months into the current financial year, the US in the past few weeks, passed the $1
trillion annual deficit mark. Though marginally smaller than last year’s total at this point, such a
figure is hardly a cause for celebration.
The world’s most indebted economy – on a gross basis – is also notching up a worrying tally of
single day records.
The Washington Times reports:
- The largest one-day increase in USA national debt was on June 30 (circa 2010) and it totaled
$165,931,038,264.30.
- This one day amount is bigger than the entire annual deficit for fiscal year 2007.
- It is larger than the $140 billion in savings the new health care bill will produce over its first 10
years.
- The one day amount works out to nearly $1,500 for every US household, or more than 10
times the median daily household income.
And now that the future demand has been brought forward, through “Cash for Clunkers” and
other government stimulus and spending programs, the USA is struggling to keep its economy
afloat. The citizens of the USA have allowed their government to essentially spend their
personal savings AND their future earnings.
Meanwhile, China is struggling to cool its own economy down. It is all the government can do to
keep a lid on growth at 11.9%, the figure recorded in the first quarter of this year. Stronger
domestic demand and a rebound in exports forced the International Monetary Fund to upwardly
revise its outlook for China’s 2010 GDP, from 10% to 10.5%. Housing prices are still rising by
an incredible 12.4% per month, according to the latest available figures, even after Beijing
introduced a series of tightening measures aimed at dampening real estate speculation. I invite
you to read here http://bit.ly/aucMjO one of my recent blog posts about China trying to cool their
economy.
Almost nobody expects China to keep such a breakneck pace. In fact, many are warning of
sharp corrections ahead. As many are well aware, nothing moves up or down without
(sometimes major) corrections. Straight lines are for geometry classes, not markets. Over the
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4. long haul, however, the trend is pretty clear. I invite you to read here http://bit.ly/aXAwI0 one of
my recent blog posts about the Chinese economy being out of control.
While it may seem like it is Time to Exit the Dragon, it’s difficult to imagine the emerging
middle-class consumers of China returning to the lot of lowly-paid factory workers without a
struggle. It is almost as difficult to imagine an American working for less than the minimum wage
but it might soon be a reality for the American worker. This situation will probably awaken the
Free Agent Entrepreneurial desire among many to consider a shift from a W2 wage system to a
1099 ownership system and lifestyle. I invite you to read here http://bit.ly/dwnsXv an article
about Looking to Retool as a Digital Entrepreneur.
Many still see China as a ripe buying opportunity but this is not the kind of wealth creating
opportunity that you are likely to see in the headlines of the evening business news and that is
why those who know they need to be savvy with their money, like the insiders, belong to a
wealth creating community.
They gain the necessary financial education and they obtain association with, access to, and
membership in a wealth creation community to regain control over their financial lifestyle. As a
result, they obtain examples of alternative wealth creation strategies such as debt reduction,
asset protection, and wealth acceleration with investments in items such as precious metals,
water rights, oil, natural gas, potash mines, food commodities, or gold mines … perhaps
investments in energy assets that are inherently useful like oil rigs, hydropower, or methanol
plants … things hard to build, difficult to replace, and costly to substitute … definitely not financial
stocks, definitely not retail stocks, definitely not commercial property.
I trust this article provides a little more insight into the global economy and while some may say
it is Time to Exit the Dragon, others highlight what may be ripe buying opportunities among a
handful of Chinese companies that trade in US Indexes, or as ADRs, and have extremely
attractive valuations.
It is wise to monitor world affairs and consider alternative wealth generating strategies. I will
provide updates in future articles and at my blog over the next few weeks.
Article Source:
http://www.articlesbase.com/advertising-articles/shanghai-is-not-what-you-would-expect-when-y
ou-visit-the-worlds-largest-emerging-market-2830933.html
About the Author
http://aspenIbiz.blogspot.com Mike Farrell is a Marketing Consultant, works with businesses to
use Internet Marketing for their advertising and PR needs, and develops campaigns that drive
highly qualified traffic to online properties for commercial purposes.
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