Even in Panama, China is on My Mind

In Panama yesterday where I’m attending the Total Wealth Symposium, I got my first chance to rub elbows with Sovereign Society members from all over the world. The subject of China was on many people’s minds, judging from the number of questions I got.

Of course China just got thrust back into the headlines due to the tragic earthquake that hit the country recently, but the big issue on everyone’s mind is the future for China’s booming economy.

The contrast between China’s growth and stagnation in the U.S. is striking. I could go through mountains of economic data to prove the point, but two items in particular stand out…

1. China’s economy grew 10.6% last quarter – the fastest growth rate in the world. The U.S. economy grew 0.6% last quarter – the slowest growth rate in the world.

2. Retail sales figures were just released for both countries too. Last month U.S. consumer purchases declined -0.2%. In China, retail sales soared 24%

China’s output is growing nearly 10-times faster than in America. Due to the ongoing impact of the credit crunch, the U.S. economy faces the prospect of long-term stagnation. To be sure, China has its share of problems too.

The rate of inflation is close to 9% due to soaring food and energy costs. That’s a much bigger problem for China and other emerging markets than it is in the U.S. That’s because the average Chinese family spends a much higher share of their disposable income on the necessities of life – including food and fuel.

China is taking steps to try and reign in soaring inflation. Beijing has raised interest rates several times in the last year and has tightened bank lending. So far these measures don’t seem to be having much of an impact, judging by China’s 10.6% growth rate.

Of course economic growth doesn’t always correlate with stock market performance. In fact, China’s mainland markets in Shanghai and Shenzhen are down about 30% on a year to date basis – the world’s worst performing stock markets.

In my view, a better way to enter China now is through its neighbor Taiwan. Recent election results should lead to friendlier relations between the two Chinas – and that’s good for business. Taiwan is already very big investor in mainland China.

Profit opportunities in the mainland look a lot more attractive now, and are becoming easier for Taiwan investors to tap into.