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Category: Corporate News
China Economy: The Good, the Bad and the Ugly
China Economy: The Good, the Bad and the Ugly

China's Economy: The Good, the Bad and the Ugly

China Economy: The Good, the Bad and the Ugly

About: People’s Bank of China (PBOC), China's Economic Growth, Chinese economy, China’s headline growth rate, Goldman Sachs, China’s foreign trade, Chinese stocks, China Daily
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China’s growth has become so hyperactive this year that most news comes with a combination of negative and positive commentary. The latest industrial production figures are a good case in point.

A new report shows that industrial production accelerated in China much more than expected in March, exceeding trends more than any time since 1998. The People’s Bank of China (PBOC) says the industrial output gap, which gauges actual production against so-called potential, widened to 3.06 percent last month.

Added to that was a little-noticed uptick in China’s headline growth rate. Just last week, every news outlet was reporting that GDP had increased by a greater-than-expected 11.9 percent. But recently the PBOC slipped a note onto its website reporting that, at a seasonally adjusted annualized rate, gross domestic product rose 12.2 percent in the first quarter from the previous three months.

Good news? Well Bloomberg took a negative view of accelerating industrial production and growth of more than 12 percent in the first quarter. The financial news hub highlighted the danger of “overheating” in the Chinese economy. The government has acknowledged that the real estate market is overheating and has taken a number of steps specifically designed to hobble real estate speculators.

We see the previously-mentioned indicators as continuing good news for investors. In fact Goldman Sachs is predicting a 25 percent rally in Chinese stocks by year’s end. And, there is more bullish news.

China Economy: The Good, the Bad and the Ugly

China’s central bank says foreign trade will continue to improve this quarter and thetrade surplus will continue to decline partly due to the weak global economic recovery. Last month China’s foreign trade actually registered a deficit, its first in six years.

Despite its cautious forecast, the PBOC says exports will continue to expand by more than 20 percent this year. Import growth will also remain at a high level due to strong Chinese demand and rising international commodity prices. In short, China is edging closer to balanced foreign trade.

An interest rate increase also appears to be on the horizon in China as Beijing tries to balance the benefits of explosive growth with the dangers high inflation and excess industrial capacity and investment.

Is this good or bad?

The answer is simple. Wouldn’t the U.S prefer to have China’s challenges rather than facing ongoing sluggish growth and high unemployment?

Of course it would.

China has just posted new employment figures showing that 2.89 million new jobs were created in China's urban areas during the first three months this year. That extraordinary feat shows that China has created fully 32 percent of the jobs targeted for the entire year during the first quarter.

China Economy: The Good, the Bad and the Ugly

Oh yes, and retail sales are exceeding expectations also. Clearly this is good news, demonstrating a vibrantly growing economy, although not one without challenges. Because China has a command economy, it is better able to force rapid change than many western democracies.

So much for the good and bad. The ugly? Take a look at the slide show of the latest entries on display at the Beijing Auto Show from China Daily and see if you can spot it:

http://www.chinadaily.com.cn/bizchina/2010autochina/2010-04/23/content_9768377.htm

 
China Stock: Look At A New China ETF
China Stock: Look At A New China ETF
A Look At A New China ETF

About: (YAO, CEO, LFC, PTR, GXC, TAO, HAO, CEO, ICBC, CNOOC, GXC)
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The Claymore/AlphaShares China All-Cap ETF (YAO) commenced trading on Monday, joining 10 other China-focused ETFs currently trading in the U.S., including two from Claymore. AlphaShares created an underlying index of companies from mainland China that are currently accessible to foreign investors. That excludes Chinese “A” and “B” shares, but includes shares listed in Hong Kong and New York. YAO also holds a small smattering of Singapore stocks.

Financials account for nearly 35% of YAO's holdings with energy stocks accounting for 18% and technology making up 11.6%. Other large sector holdings include industrials and telecom at 9.55 and 7.6%, respectively. Top equity holdings include Bank of China, China Life Insurance (LFC), CNOOC (CEO), ICBC, and PetroChina (PTR). The ETF's expense ratio 0.70%. One analyst compared YAO to the SPDR S&P China ETF (GXC), which has a lower expense ratio at 0.59%.

In first day of trading, more than 1.3 million YAO shares changed hands, showing that investor interest in anything China continues to remain robust. YAO only features companies with market caps of $500 million or higher. We like the sector mix YAO features and it has a great mix of large, mid and small caps with the various categories accounting for 57%, 33% and 10% of the ETF's holdings.

Claymore features two other China ETFs currently trading, Claymore/AlphaShares China Small Cap (HAO) and Claymore/AlphaShares China Real Estate (TAO). The company has also filed to list China ETFs focusing on infrastructure, technology and consumer discretionary stocks. The emergence of more China-focused ETFs only bolsters our thesis that the China investment story is only beginning to ramp and we say the more China ETFs that come to market, the merrier.

 
Focus Media Sells Out
Focus Media Sells Out

This is Jim Trippon with your China Market Commentary for Tuesday, December 23, 2008. China stock markets were down today with investors shell-shocked over the $1.3 billion dollar deal between two Chinese media giants, Focus Media (FMCN) and SINA Corporation (SINA). In nutshell, SINA has purchased the very core of Focus Media’s business and paid for it with newly issued stock.

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As China stock Digest subscribers may recall, SINA is one of China’s largest web portals, much like Yahoo in the United States. Focus Media is an advertising conglomerate that primarily sells space on its brightly lit animated signs in shops, elevators and inside high-end buildings. Focus does have other advertising outlets but the so-called out-of-home advertising business was biggest part of the company’s revenue stream.

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In our view Focus Media has made a poor deal. Following a top management shuffle several months ago and consistently disappointing returns, we have serious doubts about the company’s viability. The company has already terminated another revenue stream, its wireless advertising which was a kind of “SPAM” broadcast to cell phone users.

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Both Focus Media and SINA lost more than 15% on North American Markets yesterday on news of the deal. The reason for Focus Media’s loss is clearly an investor perception that the company has lost another core revenue stream and the firm will never achieve its stated aim of becoming the largest advertising business in China. The company’s stock has plummeted almost 90% this year.

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We see a brighter future for SINA. As one of China’s largest web portals, SINA has demonstrated increasing ad revenues while Focus has been losing focus and business.  Why did shares fall on the acquisition from Focus Media? Part of the reason is that the deal was paid for with newly issued stock and investors are clearly worried about a dilution of their holdings.

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But Sina has successfully established its presence in China’s explosively expanding web universe. With the purchase of a revenue-generating business, SINA now owns a new mature advertising business that reaches out to the consumer when he or she is on the move. SINA can use this asset to generate cash and increase consumer awareness of its Internet dominance.

Focus Media has repeatedly missed earnings targets and may sell other portions of its business.  As our premium subscribers know, we removed Focus Media from our model portfolio a long time ago.

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This entire episode reinforces what we have been saying for years. There is absolutely no substitute to having analysts on the ground in China to help you avoid the challenges in this still rapidly emerging market. Next week, we release our January China Stock Digest issue in which we make many predictions for the year ahead. Until then, I remain…

Committed to your PROFITS from China, Jim Trippon, Editor

China Stock Digest

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For additional information on investing in China and Jim Trippon's China Stock Digest, please visit us at ChinaStockDigest.com.