5 Crucial Facts Investors Should Know About Investing in China

Fact #5 – China’s Capital Reserves Give it Almost Unlimited Flexibility

China saved $2.3 trillion for a rainy day, and now it can spend the money as its leaders see fit. Unlike its U.S. counterpart, which may be borrowing its way into oblivion, China’s government doesn’t need to borrow against its future just to survive the present. It can finance its plans, snap up valuable assets from sellers desperate to raise capital, and make investments that will maintain its enviable growth rate well into the future. There’s a huge difference.

Westerners have been predicting China’s demise for 40 years. And for 40 years, China not only refused to roll over or just go away, it has actually grown at an average annual rate of 9.28% as reflected by its GDP. With its heavy debt load and self-made problems, the United States will be fortunate to maintain a fraction of that growth rate.

To be fair, Western pundits continue to allege that China’s numbers are “cooked” — as if to insinuate that its statistics are less trustworthy than ours. They’re probably right. But if the implication is that ours are somehow perfect, that’s not only ridiculous, it’s entirely naïve — as has been amply demonstrated by the likes of Enron, Worldcom and Bernie Madoff. And take a second look at some of the figures coming out of Washington these days.

As for the contention that China’s economic and stock-market growth rates are unsustainable, I can certainly envision a near term pullback. That’s normal for any financial market, including our own. But here’s the thing: When it comes to China, we’re investing for the long haul.

Bubble or not, in China you can invest, live through a pullback and rest easier with the knowledge that there’s a $2.3 trillion tailwind driving your money. Here in the U.S. market, you can invest, live through a pullback, and lay awake at night knowing that you’ve got a decade’s worth of headwinds, a deficit of more than $1 trillion fighting any investment play that you make.

I know where I’ll be putting my money.

Keith Fitz-Gerald is the Investment Director for Money Morning/The Money Map Report. For more information on Keith, read his bio here.