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 Background

Although the economy of China has been being on the fast track for many years, the size of China and the relatively low starting base of the economy boom should be able to keep flying for the next 5 years. It provides a great investment opportunity for investor.

Some of the unique characteristics of the China economy make the stock market very predictable. Some of them are even the root causes of the red hot stock market. It is an opportunity to make some good money. It is a life time investment opportunity that you don’t want to miss.

To be able to enjoy the bubble and prepare for the burst, you’d better do your homework.

State controlled economy

  • The  currency  of China  (Renminbi or Yuan)  is  not a free-float currency. The change of exchange rate is limited in narrow range by the China government.
  • China Government owns major equity stake of enterprises  that run oil/energy, communication, commodities, finance and insurance businesses in China.
  • The domestic prices of gasoline and oil product are control by the government although the oil companies are public companies. The government tends to subsidize the oil company for keeping the prices of gasoline and oil product low to control inflation.
  • The control of the economy from government is weakening slowly because of the opening up in economy and being a member of WTO in 2001.

    • Update: Bubble Burst

Fast growing country

  • The 2006 GDP growth rate of China is 10.5% (it’s 3.4% in the U.S.)
  • Projected 2007 GDP growth rate is 10.5%.
  • GDP growth rate is over 8% for the past 5 years.
How to Invest in China Boom

Inflation

  • China’s consumer price index was up 5.6% in July compare with a year earlier.
  • The 2006 inflation rate (consumer prices) in China is 1.5 (it’s 2.5% in the U.S.).
  • The average inflation of the first 5 months of 2007 is 2.9.

Population

  • 1.3 billions (US is 0.3 billion)

   

Hong Kong

  • A small city of China managed by UK over 100 years.
  • Hong Kong was handed over to China in 1997.
  • Today Hong Kong is a Special Administrative Region (SAR) of China that is run under the “one country, two systems" mechanism.
  • The mechanism provides Hong Kong a high degree of autonomy in all matters except foreign and defense affairs for the next 50 years.
  • The mechanism allows Hong Kong to have her own currency and stock market.

A-Shares

  • Securities of Chinese companies trade on Shanghai and Shenzhen stock exchanges. A-Shares are open to China domestic investors and Qualified Foreign Institutional Investors (QFII) only.

 

QFII

  • Qualified Foreign Institutional Investors - QFII is a regulation that allows foreign institutions that are authorized by the Chinese Government to invest in the capital markets of China.
  • The total amount of QFII is limited by the government.

H-Shares

  • Securities of Chinese  companies trade on Hong Kong stock  exchange. H-Share trading is open to Hong Kong citizen and international investors. China domestic investors are not allowed to trade H-Share before the new policy stated below. However, they can invest in H-Shares indirectly through Qualified Domestic Institutional Investor (QDII).
  • A new trial program allows domestic investors to invest in Hong Kong stock market directly. The program is limited in the Binhai newly developed area of Tianjin.
  • When China companies started to go public, they listed on both the Hong Kong exchange and the New York Exchange. Then they stop listing on the US and do it in Hong Kong only. Now, the trend is to list on Shanghai exchange as A-share.

QDII

  • Qualified Domestic Institutional Investors - QDII is a regulation that allows China domestic institutional investors that are authorized by the Chinese Government to invest in the overseas capital markets.
  • The total amount of QDII is limited by the government.

 

NEXT - opportunities from the China boom

Don’t Miss this Life Time Investment Opportunity
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