What China Wants, China Gets!

For thousands of years, China was ruled by dynasty after dynasty before finally becoming a republic in 1912. In 1949, the Communist People’s Republic of China was formed after the defeat of the Nationalist forces. And in 1978, Deng Xiaoping ascended to power and began a series of economic reforms.

Since then, China’s economic years have been impressive, but I think the most amazing thing is that this economic miracle happened under a Communist regime.

Even though the Communist Party regulates practically every aspect of both public and private life in China, capitalism has flourished without democracy for one simple reason: The Chinese leaders want it.

You see, the Chinese government gets what it wants because that is what happens under a totalitarian regime with $1.8 trillion in its pocket.

Let me give you three recent examples:

Cut the air pollution in Beijing. Starting last Sunday, cars with license plates that end in an odd number are banned from the roads every other day, alternating with cars that have even-numbered plates. The Chinese government estimates that this will take one million cars off the road each day.

When Beijing wants less air pollution, it just orders cars off the road!

Chinese drivers may not like it, but they don’t have any choice and to dull the inconvenience, car owners won’t have to pay road and vehicle taxes for three months.

No Fido on menus. You and I may consider it horrific to eat dog, but to millions of Chinese, dog is considered delicious as well as nutritious. The Chinese have eaten dog for 7,000 years and it is widely believed to lower blood pressure as well as boost virility.

But out of concern that dog dishes might offend animal rights groups and Western visitors, the Beijing Food Safety Office ordered official Olympic hotels and restaurants that are popular to foreign visitors to stop serving dog meat “to respect the dining customs of different countries.”

The meat of Saint Bernards, by the way, is considered the most flavorful.

Don’t break the law in China. The Chinese government does not release the numbers, but according to Amnesty International, China is the world’s leader in state-sanctioned executions. The death penalty is applied to more than 60 crimes including corruption, drug trafficking, embezzlement, and even tax evasion!

Amnesty International estimated that China executed 470 people in the month of April and believes that the annual number is around 10,000. As you can see, the cost of crime in China is extremely high.

Communist Party Control Extends
To Almost Every Aspect Of Personal,
Political, And Especially Economic Life

The Chinese government has figured out that the fastest way to eradicate poverty and increase its standard of living is by growing its economy. China has successfully reduced the number of its citizens living below the poverty line from 200 million in 1981 to less than 30 million today.

If the Communist Party wants Chinese stocks to rebound, they?ll make it happen.

One of the biggest threats to China’s economic prosperity today is the country’s stumbling stock market. The mainland stock market (which is closed to foreign investors like you and me) has lost more than 50% of its value from its November high and millions of Chinese investors are stinging from the losses.

And the Chinese government has flat out vowed that it will make sure the stock market doesn’t fall any further. Shang Fulin, chairman of the market watchdog China Securities Regulatory Commission, has reportedly said “total efforts” must be made to preserve the stability of the capital market.

That comment was followed by an article in the government-controlled Beijing People’s Daily that recommended 10 government measures to revive the stock market. Some of these include:

• Stricter standards to regulate non-tradable share conversions …

• Controlling large-scale new share issues …

• Establishing a timetable for the launch of index futures to stabilize prices …

• Encouraging stock repurchase by listed companies …

• And setting up a special government fund to help shore up share prices.

Did that last one perk up your ears? It should have! A senior Chinese securities official, Jiang Lianhai, is in favor of setting up a fund to help stabilize the stock market, the first time a government official has openly suggested direct government support of the stock market.

As Lianhai recently told the China Daily,

“It’s necessary and urgent to set up buffer funds to confront big speculators and stabilize the mainland market. The government had no reason to stay on the sidelines of the troubled stock market and its intervention could help stem destabilization.”

Let me tell you, you won’t find mid-level officials making public comments that are not part of a well-orchestrated government plan.

So Make No Mistake: The Chinese
Government Wants the Stock Market to
Bottom …
And What They Want, They Get!

Look, I can’t guarantee that this is the absolute bottom of the Chinese stock market’s decline. But I sure think it is. With the Olympics right around the corner, the last thing Chinese officials want is the country’s stock market taking anything away from China’s new status as a modern, prosperous country.

I believe that any dollars you put to work in China today should be the most productive investment you’ll make this year.

Where should you look? I’ve mentioned these names several times in the past, but I think it’s worth looking into companies like China Mobile (CHL), E-House (EJ), and New Oriental Education (EDU).

Or, if you’re more of an ETF investor, check out either iShares FTSE/Xinhua China 25 Index (FXI), SPDR S&P China (GXC), or PowerShares Golden Dragon Halter USX China (PGJ).

Because as I told you earlier, what China wants … China gets … and what it wants now is for the stock market to move higher.

Best wishes,

Tony

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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Tony Sagami, Nilus Mattive, Sean Brodrick, Larry Edelson, Michael Larson and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates
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