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Billionaire Bets on China - Will You?

Billionaire George Soros may be politically controversial in America but his financial track record is still very impressive. He made a fortune by betting against an overvalued British pound and he was among the first to predict the U.S. financial crisis, caused by what he called a credit "super bubble."

Now Soros is making headlines within China. His predictions are right in line with our own forecasts at the China Stock Digest, and very encouraging for our model portfolio. Speaking at Shanghai's Fudan University, Soros predicted that China's economy will grow faster than people expect and so will its global economic influence.

China will be the first country to recover from the global financial crisis, Soros says and indeed it is on track for continued expansion. As we have reported, China's GDP grew by 6.1% during the first quarter while the U.S. shrank by the same amount. China's continuing growth and its powerful position as America's banker will transform the world's financial order.

Despite signs of recovery in U.S. stock markets, Soros told the Chinese that the world is still in a bear market, and China is the exception. He went even further, predicting that China could "replace the United States as the engine of global economic growth."

During the height of the financial crisis, the China Stock Digest made substantial profits with short term bets on several Chinese banks. As Soros noted, Chinese banking has benefited from being isolated from the rest of the world and is in better shape than the international banking system. China's extensive capital controls helped to shield its financial institutions from the worst of the global financial crisis.

China's banks have also become an important force in helping the Chinese economy recover from a sharp decline in exports to western nations. In addition to a massive government stimulus program, China's biggest banks have flooded the economy with new loans to boost internal consumption and development. As Soros put it, "when the government says 'lend', banks lend. This puts China in a better position to recover from the recession and that is in fact what has happened."

Few economists agree with Soros about China's potential ability to become the new engine of worldwide growth. But there's little doubt that China is moving faster than the United States to boost its own economy.

The success of China's stimulus plan is already showing up in a number of key indicators, as we noted in the current issue of the China Stock Digest. Although China may not save any western economies, it is clearly a beacon of hope to its trading partners in Asia.

We remain very cautious about the stock market rebound in the United States. The problems in the U.S. economy remain critical and we may be seeing a bear market rally on American exchanges.  In Shanghai, Chinese "A" shares are still trending strongly upward with a gain for the year of 52 percent, substantially better than U.S. stock performance. Although some observers are warning that certain companies on the Shanghai Exchange are overvalued, the soaring value of "A" shares is one more indicator of China's economic expansion at a time when the rest of the world is still reaching for a lifeline.

As George Soros put it, "China should play a constructive role in the reconstruction of the global economic system...China is a positive force when the world economic and political orders are in disarray."

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Dedicated To Your Financial Freedom,

Jim Trippon
China Stock Digest

P.S. China Investors Field Trip - Early Bird Special
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China Stock Market - Cashing in Double Digit Profits

China Market - China Stock Market Digest - Cashing in Double Digit Profits

We’re cashing in our gains once again at the China Stock Digest! Just last Tuesday we alerted you that we were raising our “Profit Protector” stop loss thresholds on all holdings in our model portfolio. With China on the rebound we wanted to protect gains as high 30 percent (or more) on some of our most recent purchases.

It looks like we made the right decision. During a broad market pullback three of our holdings hit their profit protector prices and were stopped out. We’re now delighted to report substantial gains for our subscribers on those stocks

•    A Chinese medical supply company delivered a gain to subscribers of 31 percent. That’s a very nice return for a two week investment!

•    A top Chinese pharmaceutical company also produced double digit gains up more than 15 percent for our subscribers.

•    One of our old reliable favorites a leading Chinese telecommunications company/ also delivered gains for us as usual returning almost 9 percent to China Stock Digest subscribers over a relatively short holding period of more than two months.

The fact that we took profits on these companies doesn’t indicate that we’re pessimistic about their prospects. All three are still excellent companies, as we believe are the remaining holdings in the China Stock Digest model portfolio. We will likely return to these firms if and when they become substantially undervalued once again.

We can’t urge our subscribers strongly enough to watch their email inboxes for portfolio changes like last week’s stop loss revisions. These are important bulletins that do more than recommend new investments. They also help protect subscribers against sudden losses in today’s highly volatile investing environment.

We do expect to make new investment recommendations in the near future as the Chinese economy continues its world-beating economic growth curve. We are happy to report that China’s economy delivered GDP growth at a 6.1% rate during the first quarter of 2009. By historical standards that’s a relatively low rate of expansion for China and many stocks had fallen back in previous months in anticipation of a relatively weak first quarter.

But relative to the rest of the world China continues to boom, even while the global financial crisis drives massive corporations like General Motors to the brink of bankruptcy.
Looking to the future, China’s Premier, Wen Jiabao is predicting a “bounce” in his country’s growth curve. In a recent Asian conference Premier Wen said the economy was “better than expected.” Wen cited pick-ups in investment, consumption and industrial output, as well as ample liquidity in the banking system. In addition to a huge stimulus package, China is flooding the system with money provided by the nation’s robust banking sector.

“China got its stimulus plan started months ahead of the U.S. and it’s really working,” Frank Newman, chairman of Shenzhen Development Bank told Bloomberg news recently. Newman, who served as a deputy secretary of the U.S. Treasury from 1994 to 1995 has a unique vantage point, reporting from Shenzhen, “We see a lot of fiscal stimulus in action because we are financing it.”

It’s too early to tell whether or not western industrial economies are bottoming out, or if we are experiencing a dead cat bounce on New York’s stock markets. But there’s little doubt that China is currently leading in the race for economic recovery.

Remember, these are fast-moving times so watch your email for breaking news and investment recommendations. This is Jim Trippon, editor of China Stock Digest staying committed to your profits in China.

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Is China's Economy Doomed?

Is China’s Economy Doomed?

Boom or Bust
Making Sense of Many Predictions about China

  Is China's Economy Doomed

“Once known as  an economic miracle, China now heads for an economic catastrophe.” This recent internet posting contained terrifying words to be sure. But this isolated publication was just one of countless predictions calling for everything from boom to bust for China over the past few days. Whom should we believe?

There’s no doubt that China faces big challenges as western economies slip into recession. Orders for China’s exports are still increasing by double digits, but the rate of increase is definitely falling.

One key index, the Purchasing Manger’s Index (PMI), slumped by 68 percent from its record high last October. Export orders shrank by the largest degree since the surveys began, as the worldwide financial crisis weakened demand for China’s toys, textiles and computer products. So why does China’s economy continue to grow?

As we detail in this month’s issue of the China Stock Digest, Beijing has opened the floodgates of government spending. As much as one trillion dollars worth of stimulus is being injected into key sectors of the Chinese economy.

Just today Beijing upped the ante by committing another $145 billion to help poor families buy Chinese-made appliances. This new campaign is designed to absorb the excess production capacity caused by the export slump and to benefit industries like steel, plastics, and electronics.

This will be the key to keeping the Chinese economy in expansion mode, boosting the internal economy.

The worst case scenario? Probably the lowest authoritative prediction for the growth of China’s economy
comes from the World Bank. Just a few days ago the bank cut its forecast for China’s expansion from 9.2% to 7.5%. If only the U.S. could manage to grow half as fast.

As deeply as the World Bank cut its forecast, it said the country has "adequate tools" to keep the economy
moving at a healthy pace. Sure enough, one of those measures came out of the toolbox this week as the value of the Chinese yuan tumbled by record percentages against the dollar. This won’t be popular in Washington, but it will make Chinese exports more attractive to western buyers.

Not surprisingly, the brightest projections about the future of China’s economy come from 

Beijing. A key member of  China’s State Council declared to the state-controlled media that the economy would
  grow at a blazing-fast 10% rate next year. How is that possible?

The “huge” potential of domestic consumption and investment can counter the impact of a global slowdown.
While President Hu Jintao admitted that the central government faces enormous challenges coping with the global financial crisis, the shift to internal economic expansion is the key.

Exploiting the “vast development potential” of the world’s most- populous nation is crucial, so says the powerful State Council. Beijing is now working on further steps to help struggling companies in the steel, automotive, petrochemical and textile industries. It may also expand insurance for the jobless, a critical measure to avoid civil disturbances.

How times change! Just a few months ago China was clamping down on credit and reining in price increases to prevent the economy from overheating. With amazing speed, the government has changed from jamming on the brakes to hitting the gas with both feet.

The state pension fund has pledged to invest more in China’s depressed domestic stock markets. Insurance
  companies have also been instructed to boost their stock investments. Whether or not we believe that any government should tamper with the markets, the fact remains that

Beijing is committed to do whatever it takes to keep the nation’s economic engine humming.

What does all this mean for investment in China? Although shares in Shanghai tend to rebound with every new stimulus announcement, we invest mainly in ADRs in the U.S. For the time being ADRs continue to follow Wall Street trends.

As we know, U.S. stock markets are continuing to gyrate wildly, and China-based ADRs are fluctuating in tandem. We don’t foresee stabilization among U.S. markets in the near future. That’s why we’re maintaining an extremely conservative policy towards China investments.

For the short term, new reports of weakness in the Chinese economy may further depress shares. But the
Beijing’s stimulus plans may have widespread effects during the first half of 2009. That’s when we may see the U.S. and China moving even more decisively in opposite directions.

As long as Chinese shares are being discounted, future buying opportunities are being created.

Doomsayers who predict catastrophe for China are always coming out with new predictions. The evidence says they are wrong again. Challenging months are ahead but challenge can create new opportunities.

Keep your eyes on your email inbox as we look for new opportunities. Our investment recommendations for this period will depend on quick buys and equally fast sales.

December's issue of China Stock Digest put 8 stocks on the watch list. Subscribe now to gain access to these 8 stocks that have already earned an average of a 28% return in the third quarter of 2008. Subscribe now to gain access to these 8 stocks that have already earned an average of a 28% return in the third quarter of 2008:

Committed to your PROFITS from China,

Jim Trippon 
Editor In Chief 
China Stock Digest

Did you know that May's earthquake in China was first reported on Twitter -2 hours before it was on any syndicated news station. Do you want that same early warning system for the most recent development in the China Stock Market? Follow China Stock Digest on Twitter: