China sets fresh sails

The China critics got it wrong … rather than slowing, it’s still powering ahead.

Summary: Fears that China was heading into an economic chasm were totally unfounded, with the recent third plenum showing a nation that is still well on track for growth. China is, in fact, the stand-out example of how to successfully manage a nation towards greater prosperity at a pace which is appropriate.
Key take-out: China will remain the mainstay of the global economy for many years to come, as it was through the GFC and European debt crisis.
Key beneficiaries: General investors. Category: Economics and investment strategy.

The third plenum proved to be everything that we could hope for, and have been expecting for the past 12 months.

It was September last year when I began to speak of how China would be undertaking further significant and positive reforms, including the granting of ownership rights over land to farmers. I do not recall anyone else saying this and, in fact, when I have spoken of this likelihood most people in the audience have been sceptical.

Well, there it is in official black and white, and it is ground breaking. Furthermore, there is a serious commitment to getting the local governments in line on everything from finances, to corruption, to the environment.

China will continue to power ahead under a cleaner and fresh set of sails. There is no doubt about it.

Those who have been suggesting China was in trouble have been badly mistaken. The stand-out, no-idea bank on China would have to be the one which has been warning that China would slow to 2% GDP. These are, I believe, the same people who were sure that Greece was going to leave the euro. Though they were not alone.

As I have said, perhaps too many times, the large banks and brokerage firms have got just about everything wrong for half a decade now. Luckily there are some people who understand the world as it is – a fantastically prosperous place, full of opportunity, with some very well managed, increasingly capitalist economies such as China.

China is, in fact, the stand-out example of how to successfully manage a nation towards greater prosperity at a pace which is appropriate. China will remain the mainstay of the global economy for many years to come, as it was through the GFC and European debt crisis. Remember, big “C” saved little “C”: China saved capitalism, as I wrote all those years ago.

The land reforms are crucial to empowering farmers across the vast nation as they become true capitalists, capable of raising fresh funds to modernise or to sell and acquire so as to improve productivity. Do not under-estimate the significantly positive impact these rural property reforms will also have on world food supply for years and, indeed, decades to come.

With China on the march towards ever greater urbanisation, productivity and prosperity, and Europe now growing alongside a continuing resurgence in the US private sector, my global synchronised growth scenario for the second half of this year and into next remains on track.

It is a very positive global fundamental picture indeed, and equity markets have only just begun to price in this new and sustained age of prosperity.

My long held Dow Jones Index target of 20,000, probably by the end of next year, remains intact. As does my 8,000 9,000 target area for the ASX 200 in a few years’ time.

The Australian dollar is simply at quite silly levels and, as people slowly begin to understand what is really happening in China, the currency can only begin to rally sharply from here.

It should be an exciting few weeks ahead, after some initial volatility on false fears regarding tapering again.


Clifford Bennett is chief economist at Investor Unity. www.IU.com.au/UP

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