November 23, 2012 at 09:41 AM EST
Why China’s Golden Egg Has Yet to Hatch

Why China’s Golden Egg Has Yet to HatchChina appears to have avoided a much-feared “hard landing” via aggressive interest rate cuts, heavy infrastructure spending, and a climate of promoting consumer spending to drive gross domestic product (GDP) growth.

The most recent evidence of the economic reversal was an expansionary HSBC Flash Purchasing Managers Index of 50.4 in November, the highest reading in 13 months. While the index needs to continue to deliver positive readings, it’s a good start and it suggests that the Chinese economy and the country’s GDP growth are mending, on their way to better times ahead.

China’s industrial production surged 9.6% in October, up from 9.2% in September. The key retail sales reading showed sales increasing 14.5% in October versus 14.2% in September. (“Data shows Chinese economy expanded in October,” China Economic Review, November 12, 2012.) And in another positive reading, the country’s trade surplus of $32.0 billion in October represented a four-year high. (“China trade surplus hits four-year high,” China Economic Review, November 12, 2102.)

The task of helping China to solidify its identity as the world’s next big economic superpower lies with the new President Xi Jinping and Premier Li Keqiang, who will take control in March 2013.

To say these are not exciting times for China is an understatement as this could be a special decade for the country. The world and China will welcome the next more youthful leaders at a time when China’s political and economic role has intensified on the world stage.

For China, the change at the helm comes at a critical juncture, as the country is attempting to turn its economy around following years of explosive GDP growth that propelled the country to overtake Japan, becoming the world’s second-largest economy.

This time around, the difference will be the country’s focus on increasing domestic consumer spending to drive GDP growth and rely less on the global economy. As the situation in the eurozone and the U.S. shows, having an economy dependent on these regions has negatively impacted China’s GDP growth and prosperity.

While many are ditching China, I continue to be a Chinese bull looking forward. I feel the golden years for the country that will drive GDP growth are actually still to come. Just consider the country’s 1.3 billion people, its surging middle class, their rising income levels, and a concerted government move to continue to drive the country’s turbines to expand GDP growth.

I feel more positive towards China’s GDP growth now than a month ago, but the lingering effect of the eurozone is problematic.

I like China’s objective of wanting to power the economy forward and double GDP by 2020, introduced by its outgoing leaders. The transition to the new leadership group should only continue the country’s economic goals and GDP growth, established at the 17th National Congress of the Communist Party of China some 10 years ago.

So while the immediate future continues to be full of uncertainties, I continue to like China over the long term. There is no doubt in my mind that the country will only become both politically and economically more influential and powerful on both the domestic and world stages.

The post Why China’s Golden Egg Has Yet to Hatch appeared first on Investment Contrarians.

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