Addison Wiggin

“Looking back through history,” says Neil George, “China is one of the countries that’s never invaded anybody.

“In fact, China’s been a very defensive country. The Great Wall was built to keep the Mongol warriors and others out. The idea that after 5,000 years of history, China’s all of a sudden going to start grabbing land with guns — it’s just not part of the business model of the country’s management.”

The model, instead, is commerce: “Rather than invading around the world,” says Neil, “China invests. In the process, it has been reaping the commercial rewards. Investing and building in developing markets around the globe is bringing new customers to the manufacturers and service providers of China.”

Neil is the newest member of the team at Agora Financial, heading up our income desk. Not only is he a 25-year veteran of the financial industry, he’s done business inside China for 20 of those years. He’s helped Anheuser-Busch break into the Chinese market. He’s launched Chinese mutual funds. He’s consulted with financiers setting up the country’s first real estate investment trusts. He’s taught at the Shanghai University of Finance and Economics.

“I remember days when most of the guys I saw on the street were soldiers in green suits,” he recalls. “Now it’s businesspeople in blue suits.

“Everyone is so focused on building wealth, it’s infectious. As soon as you land and the airplane’s door opens, you get this incredible rush. And you can’t wait to get back once you leave. It’s as if there’s something in the air — an economic drug that makes you that much more driven!

“China will let people be as successful as they can,” he explains, “and will not interfere, and in most cases will facilitate getting projects done that would never get done in the United States or Europe. And they’ll get it done in time spans that are unfathomable to most major construction companies or firms that specialize in project management.”

Case in point: a maker of sophisticated electronics that partners with Samsung. “They did a project most people would say — if you could get the land, permits and everything else in the United States — would take five-10 years to get done. They got it done in under 12 months.”

It’s become fashionable to declare that China’s boom is a bubble, destined for catastrophic and perhaps irreversible failure. Neil will have none of it. “There are plenty of companies that have severe issues, but you can make that same statement about any market anywhere on the planet.”

For every tenet of the China-bashers’ playbook, Neil has a response:

  • Empty skyscrapers (and for that matter empty cities)? He’s seen them. “But I’ve also seen huge demand for educated workforces to fill those buildings. China is trying to develop nice places for people to live as they continue to move up.”
  • Skewed economic statistics? No more skewed than those in the US. And China’s are slowly becoming more reliable, judging by the discussions Neil has had with his students — some of whom work in China’s National Bureau of Statistics. “The quality of the numbers is improving as you get better-educated people in the agency.”
  • A slumping export trade? It’s no longer about what Westerners are buying from China. “Over the past year alone, exports to the United States and the EU aren’t impressive, but to the rest of Asia, exports are up more than 8.8%. Exports to Africa are up more than 9.3%. And exports to Latin America are surging by more than 12.1%.”

Neil’s No. 1 piece of advice to take advantage of the China story in your own portfolio: Avoid any broad-based play, like a mutual fund or ETF. “There are very few funds that have on-the-ground working knowledge, local analysts who are picking through the assets and doing the valuations right.”

The most lucrative Chinese plays aren’t publicly traded: They’re confined to private equity and venture capital. Sorry. Still, Neil says three Chinese blue chips are worth a look. All three have American depository receipts (ADRs) that trade on the New York Stock Exchange…

  • Seaspan Corp. (SSW): This shipper stands to gain big from trade with other emerging markets: “With intra-Asian cargo traffic expanding by more than 25%, Seaspan continues to cash in.” For the moment, it still trades below book value.
  • Cnooc Ltd. (CEO): one of China’s major oil firms. “Its performance over the challenging past five years is up more than 14% in price alone compared with US peer Exxon Mobil, with its loss of more than 2.62%.”
  • China Mobile (CHL): “This company owns and runs the backbone of the nation’s communications system. While not flashy, it is utilitarian. Its customers (I’m one of them when I’m there) get signals and data flow everywhere.”

And since income is Neil’s beat here at Agora Financial, we’re compelled to point out Seaspan pays a healthy yield of 5.1% and China Mobile’s no slacker at 3.9%. Cnooc has a way to go at 1.9%.

China, Neil says, has broken the mold in its transition to a market economy. Business success in the former Soviet bloc countries depends entirely on who you know. In contrast, “The vast majority of successful Chinese don’t try to take advantage of the system. They simply try to conduct their business and commerce despite the system.”

Much like a country you’re probably more familiar with…

Regards,

Addison Wiggin,
for The Daily Reckoning

Addison Wiggin

Addison Wiggin is the executive publisher of Agora Financial, LLC, a fiercely independent economic forecasting and financial research firm. He's the creator and editorial director of Agora Financial's daily 5 Min. Forecast and editorial director of The Daily Reckoning. Wiggin is the founder of Agora Entertainment, executive producer and co-writer of I.O.U.S.A., which was nominated for the Grand Jury Prize at the 2008 Sundance Film Festival, the 2009 Critics Choice Award for Best Documentary Feature, and was also shortlisted for a 2009 Academy Award. He is the author of the companion book of the film I.O.U.S.A.and his second edition of The Demise of the Dollar, and Why it's Even Better for Your Investments was just fully revised and updated. Wiggin is a three-time New York Times best-selling author whose work has been recognized by The New York Times Magazine, The Economist, Worth, The New York Times, The Washington Post as well as major network news programs. He also co-authored international bestsellers Financial Reckoning Day and Empire of Debt with Bill Bonner.

  • AS_MPLS

    “China is one of the countries that’s never invaded anybody” You got to be kidding me! What about Tibet?

    “And you can’t wait to get back once you leave. It’s as if there’s something in the air” , Yes, that’s called air pollution!

  • Longnine009

    China invaded Vietnam in 1979 and supported the North Korean invasion of South Korea.
    I guess I should forgive you forgetting about the Korean War and China’s involvment in
    it though. Everyone else has forgotten it too.

  • Free Tibet

    You need to retract this article. This is complete BS.

  • Aaron

    Sorry pal but you can’t just shrug off empty cities by saying “but they’re trying to fill them”.
    State run investing leads to investment distortions leads to wasted capital (like empty cities) leads to crash. It’s very simple, and China won’t escape here fate any more than we will.

  • Aaron

    Articles that claims China has never invaded anyone make me think this was written by the Chinese government and make me doubt the credibility of this website

  • Onsen

    Some facts need to be clarify here: 1. China did not invade Vietnam in 1979. They had a conflict and fought. Initially Vietnam matched over China and won many battles. Later, the Chinese fought back and drove into Vietnam territory. But in the end, China moved back to her border. 2. China and India had a dispute on the borderline. India matched across the line and defeated the Chinese army. They had occupied the land that they won. Afterward, the Chinese fought back and drove the Indian army away. But in the end, China moved back to her claimed border. 3. Tibet has always been ruled under the Chinese authority, so do other parts of its empire. The war broke out among the Koreans, Americans and then the Chinese in 1950s. “The CIA, with the Korean War only recently over, offered the Dalai Lama assistance. In 1956, a large rebellion broke out in eastern Kham, an ethnically Tibetan region in Sichuan province. To support the rebels, the CIA launched a covert action campaign against the Communist Chinese. A secret military training camp for the Khampa guerrillas was established at Camp Hale near Leadville, Colorado, in the U.S.[29] The guerrillas attacked Communist forces in Amdo and Kham but were gradually pushed into Central Tibet.” from wiki. 4. I agreed with the author that China has no intention to conquer other countries by force or with that ambition. I am not a fan of the present Chinese authority. I think the whole government is corrupt but that cannot rule out the objective fact of China is not an empire.

    I think the author here has a point which usually ignored by the media. We came to this site because we want to be a sovereign individual, not to be slaved by the governments or its media propaganda. Be smart and easy. No personal attack. Thanks for this wonderful site so that we know the truth.

  • Don

    Sorry, Tibet used to be an independant nation. Geographically, ethnically, socially, distinctly diffferent. Read the Dali Lama’s autobiography: he cites an historical agreement between China and Tibet which recognizes Tibet’s sovereignty.

  • Ms. Adams

    Tibet, tibet, tibet. @ Onsen, Tibet was an independent nation state structured around a theocracy. We may not agree on that system since it has much less expansive democratic aspirations, but what China had is invade Tibet to conquer it both culturally and theologically. Why would a sovereign nation that has not been “invaded” have to change their culture and religious structures? Onsen, I would not believe the chinese when they say that they are simply helping Tibet develop into a modern state.

  • Pfc. Parts

    China never invaded anyone. And it never rains in California.

  • vox3non

    Surely you can not believe that reading from an interested party in a conflict will give you an objective view of the conflict, can you? Just as surely as reading alone from the Communist Party of China will give you the unvarnished truth.

    While no means a choir boy, China has largely taken over those nations that had attacked it. After Mongolia captured China and was then overthrown, it was absorbed. Forward to the 20th century, it was set up as a buffer state due to Mao’s obligation to Stalin for his help. Manchuria (home of the Manchus and the Qing dynasty) after conquering Ming China was also assimilated into China. As for Tibet, which had launched numerous attacks in the preceding centuries, was for the Chinese mindset, a candidate for assimilation like Manchuria.

    A curious question also arises, why is China castigated for taking Tibet whilst India goes without a mention for taking Ladakh and Sikkim (Buddhist states as compared to the Hindu)? Is it because India is cat’s paw for the powers that be?

    Talking about treaties – ask the Native Americans how well it worked for them with the US government. Hawaii also used to be an independent nation – gained through nefarious means. Were the above not distinct nations?

    The USA sure had a taste for distinct as they obliged Mexico through force of arms to “gift” them the southwestern states (Arizona, California, Colorado, Nevada, New Mexico, Utah). So was Texas to a lesser degree. And what about Peurto Rico? China looks positively amateurish in their land grabs compared to the US.

    Is it because all this happened in the past centuries that people seem to have forgotten the USA’s expansion at the expense of others? What about the modern example of Iraq – an invasion wasting countless blood and treasure.

    The unpleasant truth is that all large nations have absorbed other nations through force or amalgamation. So please take a step down the pedestal.

    Sorry, as the saying goes, people in glass houses shouldn’t throw stones.

  • ang

    My earlier message has apparently been deleted!…hmmmm………..I merely mentioned Wiggin’s failure to remember there is a whole big country called Tibet. oh,…and also the fact that most of the western bit that is called China on maps these days never was China and still isn’t in cultural reality. I never even mentioned the split between Peking-and-environs on the one hand,and southeast China (where all the production and work actually takes place>!) on the other hand.The mandarins still rule by brutality from peking,just like the old Confucians with their hands up their sleeves. Reform is more than just a bit overdue!!!!!!!!!!!

  • Sotos

    This article certainly is BS. China didn’t invade North Korea during the Korean-US War? Wiggins should know better than that.

    Invest in China to support their factory/concentration camps, complete with forced abortions? I don’t want that blood on my hands just to make a buck.

  • Guest

    What’s a joke since the first sentence which discredited the whole article. Please reeducate yourself about numerous invasions, including, but not limited to, campaigns against the Yues (214BC), Korea (for ex: 612, 648) , Nanzhao (751), Annam (981, 1075,1406, 1788), Burma (1765), Mongolia (1388, 1410), the Dzungars (1755), Turkestan (1759), and of course Tibet.

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