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China Week: Does the 21st Century Belong To China?

22 August 2008 No Comment

As a 20-something investor, I am looking to put my money in places that are poised to grow throughout my lifetime. Is there an investment that I can continue to build up a position while it continues to grow over the next 10, 20 or 30 years? Many think that investment might be the Chinese economy or the Chinese broad stock market.

In the previous post I talked about Jim Rogers and his belief that China is the best investment right now. Continuing the discussion, Jim Rogers has been recently quoted as comparing selling China now to selling American in 1908. Translation: we are at the dawn of a long and incredible run of Chinese growth so put your money there.

It is hard to argue that the potential growth in China is staggering considering the population and current growth rate of their economy. Let’s look at some of the risks that can get in the way of Chinese growth.

China Risk #1: Population Trends

A serious threat to China’s stability are the current population trends. Because Chinese officials limit families to one child, families want that one child to be a boy so that the child will grow up and eventually take care of them. Girls grow up, get married and move away. The population has already started to skew heavily with more men than females. Some projections show scary scenarios with millions of more men then females that could lead to violence and rioting.

China Risk #2: Water Shortage

With the growing population, the water shortage issue is getting bigger. A huge chunk of the Chinese population does not have access to clean water. Even major cities such as Beijing have water issues. This is one of the reasons I like water as a long term investment.

China Risk #3: Communism and Corruption

Many are quick to point out that American in 1908 was not communist so the comparison between China of today and America back then is pointless. If a market economy is to continue to grow and take hold in China, it might be tough to prevent a move away from a single part communist government. It will be interesting to watch the political landscape in China as their economy grows.

China Risk #4: Inflation

While curbing inflation is important, every growing economy deals with it. They have already stemmed inflation to an extent and they seem to be focused on preventing it from getting out of control. Over the long term, I think this is one of the least likely risks to get in the way of China’s growth.

America Over The Last 100 Years

While America in 1908 is not the same as China of today, do not forget that America had plenty of risks and obstacles in the way of continued economic growth. We had our share of corruption, depressions and wars; yet, our country continued to blast forward and our stock market continued its climb higher.

Conclusion

It would be irresponsible for any young investor to not have some exposure to the Chinese stock market. I am not saying you should put all of your eggs in one Chinese basket, but the potential is too great to ignore. Investing in China is sure to come with some ups and downs just like investing in America 100 years ago did.

I will be watching the China story unfold over the coming years to see how the risks I’ve laid out above will be an impact to their economy and to my investments. The recent Olympics have definitely given the world notice that China is for real and that great things in their future. I’m a believer and I want to make money off it.

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