It seems that every time a Chinese investor makes an investment in a foreign country it hits the news. It also seems to scare a lot of people. Our view is that integrating China into the world economy is a good thing. We favor integrating China into the world economy for a number of reasons. The first good reason for integrating China into the world economy is the same reason that the European Union has been a great success. Forget, for a moment, the current debt problems in Europe and consider the devastation of two world wars that ravaged Europe in the 20th century. The efforts to found the EU were based on the premise that good and prosperous trading partners are less likely to become adversaries in war. The current news tells us that China is about to take control of a deep water port in Pakistan and that Zhejiang Geely Holding Group of China is paying $17 million for Manganese Bronze, the maker or the black cabs seen all over London. Are these acquisitions a bad thing or just part of integrating China into the world economy?
A large part of why Japan invaded Manchuria and tried to establish the “Greater Asian Co-Prosperity Sphere” was to gain access to raw materials as their industrial might grew. Allowing a China that is integrated into the world economy, to gain access to raw materials, serves to reduce the likelihood of conflict in Asia.
Producer nations need markets. However, integrating China into the world economy does not just mean letting China sell every doodad that they make at low (subsidized) prices without opening their markets to other nations. Economic integration is a two way street and nations that are unhappy with their current balance of payments with China need to insist on arrangements that allow for their own products and services to have fair access to the growing Chinese market.
Free Flow of Capital
The United States is a large and very open market. A lot is made about how Americans work hard and about how the USA has many natural resources. However, the free flow of capital throughout North America is a huge stimulus to growth and a great advantage over other nations. Including China, on a fair basis, into this flow of capital is part of integrating China into the world economy for the betterment of all. With a free flow of capital one can invest in manufacturing stocks in the USA or elsewhere and expect to see strong companies prosper based on sound fundamentals and not their degree of market access.
Less Likely to Declare War on a Country That Owes You Money
In the aftermath of the American Revolution the new United State government proceeded to issue bonds to finance public works projects such as new roads. The question arose as to whether or not it was a good idea to go into debt to English investors considering the recent unpleasantness. Alexander Hamilton, the first secretary of the treasury and the guy on the $10 bill believed that England was less likely to resume hostilities if by doing so they would weaken or destroy the ability of the USA to pay interest and principal on their debts. Now insert into this equation the current troubles in the South China Sea and the trillion or so in US debt held by China. Is anyone over there so stupid as to throw away a trillion dollars? This is all part of integrating China into the world economy. Do fundamental analysis of Chinese investment opportunities and invest during an Asian economic slowdown and benefit from the forthcoming economic integration of China with the rest of the world.