Don’t Believe What You Hear About China

China is dying. At least that’s what the popular media wants you to believe. China’s growth figures do show signs of slowing. But if we look at the bigger picture, the situation is not as dire as you might think.

There is a misconception that China is a one dimensional economy. Well it’s not. In actual fact, it’s better to think of China as consisting of many sub economies. And each sub economy is big, more than a trillion dollars in size. Some of these sub economies are booming, and some are declining. But it seems the declining sectors are always the focus of the mainstream media.

I must admit I also used to buy into the whole China scare. Yet when I stepped back and looked at the bigger picture that is China, my fears disappeared.

China’s five year plan

The end of 2015 marked the end of China’s 12th five year plan. Moving into 2016 China’s 13th five year plan is now in action. Their new plan will be like the pervious, with some minor changes.

China is sticking to GDP growth targets of 6%. With the help of monetary and fiscal policy I have no doubt China can deliver. Deregulation to China’s financial sector will also continue. The deregulation process will increase IPO’s.  Entry into the financial system will also be seamless, as China plans to overhaul for the future.

China’s green initiatives will also strengthen over the next five years.

I know what you’re thinking. China is one of the biggest consumers of coal and oil; they can’t be investing in green energy. Well it’s true. China is making efforts to improve air quality, and tighten their emissions standards.

Let’s not give China too much credit though. Investing in non-fossil fuel energies is more likely to be about addressing China’s growing demand for energy. But regardless of their reasons, China will be increasing their total green expenditure.

China already leads the world in wind, solar and hydroelectric power. With the added investment China’s green spending will dwarf all others. And it could mean some good opportunities for Aussie companies and investors.

Many Australian technology companies are catching onto the green trend. Green Australian-based companies might look like good investments for private Chinese takeovers.

Don’t trust the PMI

A lot of negative news surrounds China’s manufacturing industry right now. The industry bashing started when figures for manufacturing PMI missed last week. The figure missed expectations by 0.7. What does this mean?

If manufacturing PMI figures are retracting. Its bad news for China’s manufacturing industry. But sometimes bigger isn’t always better. A smaller manufacturing industry could actually be a stronger one.

Chinese manufacturers are acquiring more international competitors in 2016. They are also more innovative than ever before. China has adopted the western concepts of scaled learning and intelligent automation. This is allowing China’s manufacturing industry to be more agile and innovative.

Chinese agricultural imports are increasing

So far I’ve been talking a lot about China. But what about Australia? Will China’s growth benefit our domestic investors? In short, yes, and I’ll tell you why.

Chinese Agricultural imports are growing. Agriculture just might be the greatest place to invest this year. The graph below shows China’s growth for some agricultural products.

China economy appetite

Source: USAD economists James Hansen and Fred Gale

China’s growing population has not allowed the country to become self-sufficient. So China has had to import food in mass quantity.

What’s different now is China’s abolishment of the one child policy. Chinese couples have had to apply to have a second child in years leading up to the last. Now, China’s population is likely to grow even further. And with population growth, the demand for food skyrockets.

A range of countries supply China with food products. But maybe none are positioned as well as Australia.

Australian food is reliable and of the highest quality. Quality branding goes a long way in the eyes of the Chinese. China imports products from Australia which are deemed better than its domestic counterpart. But Chinese consumers are also adopting new tastes. And Australia has exactly what they need.

The Chinese diet has changed from primarily rice to include more meat. On the above graph we can see how this cultural shift has helped grow demand for pork and beef. But not just any beef, Australian beef.

A paper submitted to the AGDA showed Chinese trends of food consumption. The paper stated Australia would benefit directly from exporting agricultural products to China. Obvious enough for the rational investor.

Härje Ronngard,

Junior Analyst, Money Morning


Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

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