Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Stock Market Election Year Cycles – What to Expect? - 4th Jun 20
Why Solar Stocks Are Rallying Against All Odds - 4th Jun 20
East Asia Will Be a Post-Pandemic Success - 4th Jun 20
Comparing Bitcoin to Other Market Sectors – Risk vs. Value - 4th Jun 20
Covid, Debt and Precious Metals - 3rd Jun 20
Gold-Silver Ratio And Correlation - 3rd Jun 20
The Corona Riots Begin, US Covid-19 Catastrophe Trend Analysis - 3rd Jun 20 -
Stock Market Short-term Top? - 3rd Jun 20
Deflation: Why the "Japanification" of the U.S. Looms Large - 3rd Jun 20
US Stock Market Sets Up Technical Patterns – Pay Attention - 3rd Jun 20
UK Corona Catastrophe Trend Analysis - 2nd Jun 20
US Real Estate Stats Show Big Wave Of Refinancing Is Coming - 2nd Jun 20
Let’s Make Sure This Crisis Doesn’t Go to Waste - 2nd Jun 20
Silver and Gold: Balancing More Than 100 Years Of Debt Abuse - 2nd Jun 20
The importance of effective website design in a business marketing strategy - 2nd Jun 20
AI Mega-trend Tech Stocks Buying Levels Q2 2020 - 1st Jun 20
M2 Velocity Collapses – Could A Bottom In Capital Velocity Be Setting Up? - 1st Jun 20
The Inflation–Deflation Conundrum - 1st Jun 20
AMD 3900XT, 3800XT, 3600XT Refresh Means Zen 3 4000 AMD CPU's Delayed for 5nm Until 2021? - 1st Jun 20
Why Multi-Asset Brokers Like TRADE.com are the Future of Trading - 1st Jun 20
Will Fed‘s Cap On Interest Rates Trigger Gold’s Rally? - 30th May
Is Stock Market Setting Up for a Blow-Off Top? - 29th May 20
Strong Signs In The Mobile Gaming Market - 29th May 20
Last Clap for NHS and Carers, Sheffield UK - 29th May 20
The AI Mega-trend Stocks Investing - When to Sell? - 28th May 20
Trump vs. Biden: What’s at Stake for Precious Metals Investors? - 28th May 20
Stocks: What to Make of the Day-Trading Frenzy - 28th May 20
Why You’ll Never Get Another Stimulus Check - 28th May 20
Implications for Gold – 2007-9 Great Recession vs. 2020 Coronavirus Crisis - 28th May 20
Ray Dalio Suggests USA Is Entering A Period Of Economic Decline And New World Order - 28th May 20
Europe’s Coronavirus Pandemic Dilemma - 28th May 20
I Can't Pay My Payday Loans What Will Happen - 28th May 20
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

In the Shadow of the Dragon

Economics / China Economy Jul 08, 2010 - 02:39 PM GMT

By: Peter_Schiff

Economics Best Financial Markets Analysis ArticleJohn Downs writes: Although China is not the biggest economy in the world by GDP, (it is third, after growing a remarkable 8.7 percent last year), its exports are increasingly seen as the needed lifeline for many shaky economies. But as China plots its future as the world's largest exporter, it must be of some concern to them that their top two clients (the US and EU) are broke. As a result, China knows that it will have to look beyond developed markets for continued growth.


While a rebalancing of the Chinese economy towards domestic consumption is increasingly evident, the Chinese are also aggressively focusing investments toward emerging markets. By securing precious natural resources, developing infrastructure and deepening trade relations with the developing world, the Chinese are lessening their economic dependence on the mature markets of the US and EU.

In the developing world, China's influence is hard to miss. Direct trade agreements with Brazil (China is its largest trade partner) and Argentina reflect its growing influence in South America, long considered the United States' sphere of influence. Africa has experienced influx of Chinese investment, with resource-for-development contracts being signed with several African countries. Unlike the West, China rarely let's other interests trump commerce. China has concluded agreements with international pariah states like Sudan, Iran and Venezuela. The warm welcome these countries receive in Beijing stands in sharp contrast to the reception many Chinese companies have received on American shores - just ask CNOOC.

But nowhere is China's growing influence felt more than in its own backyard.

Last week, a landmark Economic Cooperation Framework Agreement with Taiwan was signed. The agreement cuts or eliminates tariffs on billions of dollars of Taiwanese imports and, almost as importantly, opens the door for other Asian countries to sign trade agreements with Taiwan without fear of drawing China's ire. Given the long shadow cast by the strengthening mainland, some in Taiwan have characterized the treaty as a "matter of economic life or death." This is perhaps a bit melodramatic, but such is the perceived importance of being competitive in China.

To China's south, the ten member block of emerging- and frontier-market countries known as the Association of Southeast Asian Nations (ASEAN) have seen economic ties with China strengthen greatly over the past decade. In January of this year, the much anticipated China-ASEAN Free Trade Agreement was launched, covering nearly two billion people and $250 billion in trade flows in 2008 alone. ASEAN has 580 million potential consumers of Chinese exports, and a combined economy bigger than that of India. Substantial reserves of resources such as oil, natural gas, coal, and other commodities are of keen interest to resource-hungry China. New infrastructure development will be needed to access all of those resources, and the Chinese are always happy to help.

In Vietnam, for example, Chinese firms hold a third of ongoing construction projects - including railways, ports, and power plants. Bilateral trade between China and ASEAN is expected to surpass that between the US and ASEAN by the end of 2012, a growth of over 50% from current levels. According to conservative estimates from the Financial Times' China Confidential newsletter, direct investment from Chinese companies into ASEAN may climb to a cu­mulative $30bn by the end of 2012, increasing nearly five-fold from the cumu­lative $6.5bn at year-end 2008.

Much of this push into ASEAN is motivated by the rising cost structures Chinese firms are facing at home. Domestic labor shortages and strikes are leading to rising wages, and likely to RMB appreciation. Though this is a sign of the increasing wealth of the Chinese, some low-cost manufacturers may move to receptive ASEAN countries, which are now lower on the economic ladder. Industrial business parks are sprouting up across Southeast Asia to accommodate the trend.

In what should be a familiar refrain for those here in the US, Chinese businesses are looking to move "south of the border" to remain competitive. An unintended benefit of these new investment flows will likely be an increasing acceptance of the RMB in ASEAN states as a stable and strengthening currency. The Chinese intend for the RMB to become ASEAN's trade settlement currency of choice, replacing the precarious US dollar. This may form the bridgehead from which the RMB establishes itself as a truly international reserve currency.

For investors, the Chinese push into frontier markets may offer promising returns in the medium-term. For example, emerging market bonds have rallied every quarter since the end of 2008, and posted record inflows this year. [Past performance does not guarantee future results.] Unfortunately, accessing frontier markets has historically been difficult for small investors. Poor accounting practices, corruption, lack of local knowledge, and illiquidity are risks to be considered.

For the right investor, though, there are increasing opportunities to invest in these markets via enterprising Chinese firms. Exchanges in Hong Kong, Singapore, Australia, and even Canada are now home to Chinese companies investing or operating in ASEAN member countries. Today, these historically remote markets are no longer the exclusive domain of hedge funds, institutions, and private equity investors. Any investor seeking to capitalize on growth in Asia can now look beyond China and toward the emerging ASEAN economies formerly in the shadow of the dragon.

John Downs is the Assistant Manager of the Los Angeles branch of Euro Pacific Capital. During a ten-week stint in China and Southeast Asia earlier this year, John got to witness Asia's economic vibrancy firsthand and has brought home a new appreciation for emerging economies. He holds degrees in History and Political Science from the University of California at Davis.

Click here for a description of Peter Schiff's best-selling, just-released book, How an Economy Grows and Why It Crashes.

Regards,
Peter Schiff

Euro Pacific Capital
http://www.europac.net/

More importantly make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com , download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

Peter Schiff Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules