China's Economic Boom & Industrial Revolution

Although it is still a communist country in name, China has created more than 300,000 millionaires1 and 108 billionaires.2 (If you include the billionaires who reside in Hong Kong, China has an amazing 150 billionaires . . . more billionaires than any country in the world except the United States.) Deng Xiaoping once said "To get rich is glorious!" Well, he has definitely proven that statement true.

China's new rich are becoming richer with unprecedented speed. In 1999, the Hurun Report ranked only 50 Chinese as being wealthy. The cutoff point to rank among the gloriously rich required a net worth of a mere $6 million. Today, the list has expanded to over 800 Chinese multimillionaires! The cutoff point on the new listing of China's wealthy elite has been boosted to $100 million dollars. Never before have so many people became so wealthy in such a short amount of time. The booming China economy and the nation's new economic landscape have been compared to the Industrial Revolution of the United Kingdom and the robber baron period of the United States. The huge difference in these comparisons is that China's capitalist revolution is creating economic growth much faster and on a much larger scale that in either Britain or the United States.

The Chinese economy expansion has created a new wealthy class which has transformed the countryside. Approximately 300 million people in China have been lifted out of poverty. The average Chinese citizen's income has increased by over 400 percent.

As China's middle class is rapidly growing, towering cities have sprouted in empty fields. Peasants endlessly flood in to urban areas in search for work and wealth to create one of the greatest migrations in history. Although census estimates have a considerable margin of error, it is believed that there are over 160 cities in China with a population of over a million.



The Recipe for China's Urban Transformation and Economic Growth

China's economic growth is unprecedented due to its speed and steadiness. With the Chinese economy touching the lives of over 1.3 billion people. In 2006, the China economy grew at a rapid 11.1 percent rate. Compare that to the United States' 3 percent annual growth rate, and you can see why the China economy is so intriguing to investors.

It's no secret that Chinese factory workers can earn an average of $5.00 a day or less. For those who wonder when China's economic growth will run out of steam, the vast pool of available workers in the countryside provides a tangible answer. China will not run out of cheap labor anytime in the near future, not when hundreds of millions of people are waiting in line to take their place in China's growing and much-envied middle class.

China's highly motivated and organized workforce is supported by an equally motivated government. Beijing's modern national infrastructure has already succeeded in turning the once poverty-stricken nation into the world's factory floor. The United States serves as a sharp reminder of the importance of staying on the leading edge of infrastructure, education, and research and development. China's modern economy is moving it into a world leader and will cement its place as an advanced society on the global stage.



From Rags to Riches

How has China grown to become the world's second largest trading nation, surpassing Germany and now challenging the United States?

To some degree, Deng Xiaoping our old capitalist mentor, should be given the credit for fostering the capitalistic mindset in China. He risked his life to create a modern Chinese Economy. Deng began the rejuvenation of agriculture, industry, science and technology and education. He stopped the government-mandated quotas on farmer allowing them to keep the profits, which freed the farmers economically to keep the profits from crops.

Markets sprang up in thousands of villages as farmers sold their produce and were able to keep the profit. Private enterprises owned by previous "peasants" began a manufacturing frenzy assembling toys, fireworks, bricks and clothing. The profits allowed these new business owners to build homes, sparking the creation of larger industries.

Deng created SEZs or special economic zones in the coastal provinces of Guangdong & Fujian. Hong Kong's manufacturing tycoons swarmed in to set up large manufacturing plants due to the tax subsidies created. The SEZ system was expanded which led to further development and created an industrial explosion. To keep up with the China Industrial Revolution, the education system was expanded. Hundreds of thousands of students were sent abroad to study in the areas of science and technology, even to the capitalist Mecca - the United States. The returning educated Chinese brought the expertise and ambition of the U.S. home. Today, Chinese universities turnout an estimated 352,000 engineers annually.

China is poised to overtake the United States economically in the next few years. Will you be a part of the China Miracle? Investment opportunity has never been as good as it is RIGHT NOW. Don't be left out and full of regret.



The Market Opens

Deng Xiaoping deserves a great deal of credit for establishing the China Stock Market. He said, in a famous quotation, "Are such things as securities and stock markets good or not? It is permitted to try them out, but it must be done in a determined fashion."12
Deng's 1992 declaration made it possible for China investors to begin trading in the growing group of the investment opportunities in China. The China Stock Markets erupted in the Shenzhen Stock Market and Shanghai Stock Markets. These two China stock markets now offer over 1,800 listings.

Less than a year after Deng's determined pronouncement in favor of stock markets, a leading carmaker known as Brilliance China Automotive (CBA) was listed on the New York Stock Exchange, raising just $80 million in its initial public offering (IPO). Although U.S. investors were slow to warm up to companies like CBA from China, informed Chinese investors knew what a good deal the U.S. investment community was getting. Chinese IPOs, especially those of Chinese banks floated on the Hong Kong market in 2007, have now joined the ranks of the largest IPOs in history.

The statistics the media provide can be very skewed in a country as large and diverse as China. China's gross domestic product (GDP) per capita was a relatively humble $1,800 in early 2007. The average worker's income is expected to rise to $2,400 by 2010. The rural Chinese economy is improving, with an astounding 400 million people having been lifted out of poverty between 1985 and 2001.

A word of advice: Investors should always look at China's growth statistics with a jaded eye, but not because they tend to be overstated, as was usually the case with centrally planned economies like the now defunct Soviet Union. To the contrary, China's numbers are usually understated. Why? Because China prefers not to alarm the world or attract undue hostility from its trading partners with revelations about the scale of its economic expansion. As the always-quotable Deng Xiaoping once said, "China should disguise its ambition."

The new numbers boost the Chinese economy gross domestic product for 2005 to almost $2 trillion (as measured by the conventional yardstick of nominal GDP). That resulted in a colossal jump of 17 percent in the GDP from the previous year. Fears that the Chinese economy was in a bubble, driven largely by excessive investment, have been eased considerably. This shows that the Chinese economy is much more diversified and healthier than anyone had known.

Who Is the World's Real Economic Superpower?

It may seem that China's economy still has a long way to go before it eclipses the United States's economy, which had a GDP of more than $13 trillion in 2006.26 But the day is coming. Conventional wisdom predicts that China will overtake the United States in 2035 in nominal GDP terms. But that prediction severely underestimates China's accelerating economic growth and the scale of its economic transformation.

Many economists believe that Purchasing Power Parity or PPP provides a more meaningful way of comparing economies than the usual nominal GDP figure. Purchasing Power Parity is a way of comparing the economies of countries without the distortions caused by currency exchange rates and other disparities. As measured by Purchasing Power Parity, the Chinese economy is already the second largest on the planet, following only the United States. Imagine, for example, that a factory worker in China has to pay much less for a new washing machine than his counterpart in the United States. The Chinese worker may be earning less than the U.S. worker in absolute dollar terms, but he may be richer than the raw numbers indicate because of his greater purchasing power for a given basket of goods and services. The World Bank and the CIA use PPP when comparing national economies.

By the standard of Purchasing Power Parity (PPP), China had a GDP of $10.1 trillion in 2006.27 Compare that with America's GDP, estimated at $13.13 trillion, using the same PPP yardstick. China is very close and catching up quickly.

China's growth affects the whole world. China adds $400 billion to $500 billion worth of new wealth to the world's economy every year, , an amount that has now surpassed the U.S. contribution to global wealth creation.


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