Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
The Central Bank Time Machine - 23rd Aug 19
Stock Market August Breakdown Prediction and Analysis - 23rd Aug 19
U.S. To “Drown The World” In Oil - 23rd Aug 19
Modern Monetary Theory Could Destroy America - 23rd Aug 19
Seven Key Words That Explain "Stupidly High" Bond Market Prices - 23rd Aug 19
Is the Fed Too Late Prevent A US Housing Bear Market? - 23rd Aug 19
Manchester Airport FREE Drop Off Area Service at JetParks 1 - Video - 23rd Aug 19
Gold Price Trend Validation - 22nd Aug 19
Economist Lays Out the Next Step to Wonderland for the Fed - 22nd Aug 19
GCSE Exam Results Day Shock! How to Get 9 A*'s Grade 9's in England and Maths - 22nd Aug 19
KEY WEEK FOR US MARKETS, GOLD, AND OIL - Audio Analysis - 22nd Aug 19
USD/JPY, USD/CHF, GBP/USD Currency Pairs to Watch Prior to FOMC Minutes and Jackson Hole - 22nd Aug 19
Fed Too Late To Prevent US Real Estate Market Crash? - 22nd Aug 19
Retail Sector Isn’t Dead. It’s Growing and Pays 6%+ Dividends - 22nd Aug 19
FREE Access EWI's Financial Market Forecasting Service - 22nd Aug 19
Benefits of Acrobits Softphone - 22nd Aug 19
How to Protect Your Site from Bots & Spam? - 21st Aug 19
Fed Too Late To Prevent A US Housing Market Crash? - 21st Aug 19
Gold and the Cracks in the U.S., Japan and Germany’s Economic Data - 21st Aug 19
The Gold Rush of 2019 - 21st Aug 19
How to Play Interest Rates in US Real Estate - 21st Aug 19
Stocks Likely to Breakout Instead of Gold - 21st Aug 19
Top 6 Tips to Attract Followers On SoundCloud - 21st Aug 19
WAYS TO SECURE YOUR FINANCIAL FUTURE - 21st Aug 19
Holiday Nightmares - Your Caravan is Missing! - 21st Aug 19
UK House Building and House Prices Trend Forecast - 20th Aug 19
The Next Stock Market Breakdown And The Setup - 20th Aug 19
5 Ways to Save by Using a Mortgage Broker - 20th Aug 19
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19

Market Oracle FREE Newsletter

The No 1 Gold Stock for 2019

Higher Gas Prices Will Help the Chinese Economy

Stock-Markets / China Economy Jun 25, 2008 - 01:11 AM GMT

By: Money_and_Markets

Stock-Markets

Best Financial Markets Analysis ArticleTony Sagami writes: With all the great economic strides China has made, it is sometimes easy to forget that China is still a communist country and is controlled by the Communist Party of China.

Part of that Communist control is over prices. The National Development and Reform Commission (NDRC) controls the prices on thousands of items: Drugs, grain, edible oils, pork, noodles, milk, eggs, cigarettes, cloth, steel, train and bus fares, cement, fertilizer, college tuition ... and fuel.


Last week, the NDRC raised the price of gasoline and diesel by 17% and 18% respectively.

If rising fuel prices are bad for the U.S. economy, they must be just as bad for the Chinese economy, right? At least that is the popular advice being delivered by many of the so-called experts and financial shrills on Wall Street.

Wrong!

It would be a huge mistake to think this fuel price increase will somehow derail the Chinese economy!

Here are three reasons why:

Reason #1: Gas prices are not nearly as important to the typical Chinese citizen , who doesn't even own a vehicle, let alone drive a gas-guzzling SUV. Most people walk, ride a bike or scooter that gets 100 MPG, or use public transportation (buses, rail, or subway) to get around.

The first mention of bicycles in China was in 1860, when a European official wrote of seeing a velocipede, an early version of the bicycle, newly-arrived from Paris. Nowadays, China is known as the world's bicycle kingdom.
The first mention of bicycles in China was in 1860, when a European official wrote of seeing a velocipede, an early version of the bicycle, newly-arrived from Paris. Nowadays, China is known as the world's bicycle kingdom.

The result is that transportation costs are a very minor monthly expense for Chinese consumers. In other words, higher fuel costs are not hitting disposable incomes in China like here in the U.S. The most recent retail sales numbers in China showed a 21% jump in May compared to the same period 12 months ago!

Reason #2: Gas is still cheap in China. Prices are still under those in the free market. Even after this increase, a gallon of gas costs about $3. That's 25% less than what we pay in the U.S. The result is that Beijing is still subsidizing the cost of fuel across China ... just not as much as before.

Reason #3: The last price hike did not slow China's economy. There seems to be no correlation between higher fuel prices and an economic slowdown in China. The NDRC raised fuel prices by 10% last November when oil was $90 a barrel but the Chinese economy didn't miss a beat. China's GDP grew by 11.9% in 2007 and the World Bank just upped its 2008 forecast to 9.8%. All statistics indicate that China is still growing like a weed.

Look, China consumed an average 7.86 million barrels of oil per day in 2007 — 9.3% of the world's total. Meanwhile, the United States went through 20.7 million barrels of oil per day or 24% of the world total last year.

So if any economy is going to suffer from rising oil prices, it's the U.S., not China.

If anything, I think the Chinese economy is actually going to improve because of this price increase!

Many parts of China have been suffering from moderate to severe fuel shortages because fuel retailers Sinopec and Petro China simply shut down many of their gas stations.

Reason: Because prices were being kept too low, they couldn't make money. It was easier to just not run the pumps.

Now, it will become easier for gas retailers to turn a profit again. Stations that have been bone dry will soon have plentiful supplies of fuel. Motorists and truckers that were left stranded or paying sky-high black market prices can get back on the road. Long waiting lines and fuel shortages will be a thing of the past. And as a result, the economy will pick up steam!

What was an economy hamstrung by artificial price controls, fuel shortages, and uncertainly ... is now largely unshackled and ready to soar even higher.

For that reason, I believe ...

Chinese Stocks Look Every Bit As Attractive Now As They Did When the Market Bottomed in 2005!

Against that fuel shortage backdrop, Chinese stocks have taken it on the chin. As measured by the Shanghai Composite Index, Chinese stocks have dropped 46% so far this year, and are down by more than 50% from their November 2007 highs.

Believe it or not, these types of drops aren't uncommon in China. For example, the Shanghai Index lost 55% from June 2001 through July 2005, years in which the Chinese economy grew by an average of 9.5%.

Buying the dips in China has proven to be a stunningly profitable investment strategy.
Buying the dips in China has proven to be a stunningly profitable investment strategy.

But if you had bought in after that 55% drop, you could have made 600% on your money in just two short years!

Clearly, investing in China can be a roller coaster ride, but buying on these dips has been ... and I believe will continue to be ... an extremely profitable strategy.

Remember, we're not talking about dotcom pieces of junk that don't make any money. The Chinese companies that are now on sale are part of the foundational building blocks of the Chinese economy — construction, retail, energy, finance, health care, food, and transportation firms. They have real revenues and real profits.

You now have the opportunity to buy their stocks at a 50%-plus discount!

Plus, you have a key economic catalyst — the elimination of fuel shortages — to jump start the economy, pump up corporate profits, and rejuvenate Chinese stock prices.

Bottom line: You may want to consider adding some Chinese investments to your Asian portfolio. I think you'll be very happy with the results a year or two down the road.

Best wishes,

Tony

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

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


Comments

root man
25 Jun 08, 13:15
Wrong on China

Wrong.

The issues you mention may be true.

However those are not the only issues.

As stuff costs more to ship more manufacturing will move back to the US.

http://abcnews.go.com/print?id=5235731

China is freak show dictatorship.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/19/ccfunds119.xml

http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=A1YourView&xml=/money/2008/05/30/ccambrose130.xml

Their aging population is going to be a major problem.

http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=A1YourView&xml=/money/2008/06/23/ccview123.xml


K Sanders
29 Jun 08, 22:04
China

As usual, "experts" disagree about the viability of China, or any other country, in the current economic environment. It would be nice to get some straight answers, for once. Then it dawns: It's all supposition. The truth: Those with money will continue to make money. Those without money are irrelevant.


Post Comment

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

6 Critical Money Making Rules