Can We Quit Worrying about Investment in China, or Not?

Over the last year investors fretted about China, its economy and it currency. It certainly makes sense in an interconnected global economy to keep track of how the major players are doing. Meanwhile in the USA Donald Trump and Bernie Sanders are riding a wave of popular anger against the “establishment.” In that regard it is useful to note that the USA is not the only country where many people are upset about how the government runs things. As its economy slows China is seeing increasing labor protests. So, can we quit worrying about China, or not? The New York Times reports as labor protests multiply in China.

As China’s economy slows after more than two decades of breakneck growth, strikes and labor protests have erupted across the country. Factories, mines and other businesses are withholding wages and benefits, laying off staff or shutting down altogether. Worried about their prospects in a gloomy job market, workers are fighting back with unusual ferocity.

Last week, hundreds if not thousands of angry employees of the state-owned Longmay Mining Group, the biggest coal company in northeastern China, staged one of the most politically daring protests over unpaid salaries yet, denouncing the provincial governor as he and other senior leaders gathered for an annual meeting in Beijing.

China Labor Bulletin, a labor rights group based in Hong Kong, recorded more than 2,700 strikes and protests last year, more than double the number in 2014. The strife appears to have intensified in recent months, with more than 500 protests in January alone.

This presents a dilemma for the Communist government which has embraced its so-called managed capitalism while still portraying itself as a guardian of workers’ rights. The Communist Party in China maintains control with a carrot and stick approach. As its economy slows the carrot is shrinking. If the government uses the stick to an extreme to maintain order and control its claim to legitimacy diminishes. The long term concern regarding China is its social and political stability as the country adjusts to slower growth and a consumer driven economy.

How Should Investors Respond?

Where you worry about China or not, this is probably not a good time for major foreign direct investment in China or for that matter for major investments in Chinese stocks. Trump, who could conceivably end up in the White House, talks trade war with China, Japan and others. A politically and socially unstable China could become very dysfunctional. It is no longer a viable solution for the government to release the Red Guard carrying books of Chairman Mao and sending public figures into the country for “re-education.” You need to worry about China today if you are invested there. And you need to be aware of how China is doing if you are invested in parts of the developing world that rely on China as a buyer of their raw materials.

Trans Pacific Partnership

A better choice than China for investing these days is probably in the nations of the Trans Pacific Partnership. This group of nations is aligned to specifically counter China and will be less likely to be damaged by the upcoming social chaos in the land of managed capitalism.

The Trans Pacific Partnership (TPP) is a proposed investment treaty involving as many as a dozen nations located around the Pacific Rim. Nations currently involved in negotiations include the following:

  • Australia
  • Brunei
  • Canada
  • Chile
  • Japan
  • Malaysia
  • Mexico
  • New Zealand
  • Peru
  • Singapore
  • United States
  • Vietnam

The stated goal of the Trans Pacific Partnership is to enhance trade and investment among member nations thereby promoting growth, development and innovation.

Can we quit worrying about China? The better choice if you have China-related assets is to do what the wealthy Chinese are doing. Take you money and leave!

Can We Quit Worrying about Investment in China, or Not? PPT

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