China currently holds the position as one of the fastest growing major economies in the world. Many countries are experiencing economic slumps while the Chinese economy continues to grow. How is this possible? Many people believe China’s economy is a bubble about to burst. Others believe the China Infrastructure Index ETF (NYSEArca: CHXX) will provide China with necessary resources to implement an efficient long term growth strategy.
Just recently, China implemented an infrastructure index fund, enabling U.S. investors to invest in China’s infrastructure sector. The ETF is designed to invest in the 30 largest infrastructure development companies that are focused on developing China’s infrastructure (roads, bridges, housing, skyscrapers, etc.). The fund was launched at $20 per share, and an annual expense of .85% can be achieved in the trading of this fund. On the first day of trading, the fund advanced to 3.8%, with a volume of only 14,000 shares.
BEARISH ARGUMENT: CHINA IS A BUBBLE ABOUT TO BURST?
Many countries around the world are experiencing economic turmoil, and a continuous struggle to stay a float. Meanwhile, China is experiencing economic growth. How can this be? China’s government may be presenting economic measurements that do not represent China’s true position, enabling false and misleading growth estimates to be achieved. Also, many individuals believe the Chinese government is relying on alternative methods when calculating measurements of economic stability, providing government officials with the ability to present confusing measurement results.
Gross domestic product (GDP) is a measurement of a country’s overall economic output. GDP=(C+INV+G+(eX-i)), can be calculated by adding private consumption, gross investment, government spending, and the difference between exports and imports. Some analysts are claiming that China’s GDP results have to be skewed. Many wonder how China’s economy continues to grow even though many parts of the world are experiencing recessionary difficulties. Analysts criticize the Chinese government due to the fact that China has experienced social unrest for some time now, and that inflationary movement causes a growing disparity of income difference between the rich and the poor. How can Chinese officials claim economic growth when facing the troubles of heightened turmoil?
A major indirect cause of social unrest is the growing gap between the incomes of the rich and poor, and government interference in rural areas. In recent years, Chinese officials have stripped farmers from their lands in attempts to implement industrial and urban development procedures. Many citizens have grown very angry, claiming that government land seizures were insufficient due to the fact that proper compensation was not offered. Also, many citizens are claiming that local officials have been inconsiderate and that physical force had been used on many occasions. In regard to all the protests and riots, government leaders have taken the initiative to restore public trust, but does the future look positive for China?
COMPANIES TO AVOID IN CASE OF BEARISH ARGUMENT!
Analysts supporting China’s bubble might warn investors to stay away from Chinese real estate, infrastructure development, and natural resource imports. Those analysts might claim that China’s government has been presenting false and misleading information about economic growth. Those in opposition of Chinese investments might believe China is a lone dog in search of foreign investments.
BULLISH ARGUMENT: CHINA IS ON THE RIGHT TRACK!
Increased GDP (C+Inv+Government Spending+(eX-i)) measurements can be achieved in various ways. For example, the infrastructure index fund can provide China with necessary resources to achieve a higher GDP. The Chinese government has centered much on the development of various types of infrastructure, enabling increased government spending measurements to be achieved. Also, providing an infrastructure index fund may lure potential investments, enabling higher investment measurements to be achieved. Infrastructure investments will provide China with the necessary resources to implement a development strategy, enabling the country to be better equipped for future world growth.
“Infrastructure is attractive in China, in part because of their one-party system,” said Richard Kang, CIO and director of research at EG Shares. “This is not supportive of a communist system, but having a one-party system allows for long-term planning. [It’s easier] for China to invest in a national highway system, a national railway system. … Controlling social unrest is a prime directive of the one-party state, and that means giving people what they want, which means putting money into better roads, shopping centers, etc.” China might as well invest in developing domestic infrastructure while many other countries remain in a recession. After all, China is a huge manufacturing hub with huge amounts of resources to allocate.
Some people believe the infrastructure boom is a bubble waiting to burst, but the infrastructure fund may hold great potential. Sure, Chinese officials have stripped many landowners from their land in order to expand urban development. Sure, government spending has led to increased inflation, which ultimately causes less spending power for every dollar spent by the Chinese citizens. Also the gap continues to grow between the rich and the poor. China’s citizens may have no choice but to flee into the city in search of better paying jobs.
I believe investing in infrastructure may lead to positive returns. China is a world power that many countries
are counting on to survive. China holds billions of people which may force Chinese officials to plan five steps ahead in order to sustain future socioeconomic stability. According to the World Bank and other sources, average rural incomes in China are less than one-third of urban incomes. Citizens in search of urban relocation will be forced to work in businesses located in urban areas due to this income average. Therefore, many empty buildings may be filled with a continuous flow of citizens in search of relocation, enabling those with infrastructure investments to reap possible returns.
Many people are comparing China’s economic position with that of the recent U.S., but political and economic differences separate these countries. China’s economy is structured around a one party state, while U.S. officials look to a four party system for guidance. China can implement strategies much easier than the U.S. economy can due to the fact that government cooperation does exist. Also, China can learn from trial and error committed by the U.S. Hopefully all goes well with the infrastructure fund, and that a higher standard of living can be achieved throughout the world. After all, all countries are now involved in the global restructuring process due to the fact that one countries inflationary movement affects all others. Also, remember that outsourcing (global trade) leads to a higher standard of living for all countries, due to specialization of labor.
COMPANIES THAT MAY BENEFIT FROM BULLISH ARGUMENT!
Analysts in support of China’s growth strategy might persuade investors to focus on companies assisting in China real estate, infrastructure development, and natural resource importation. Those analysts might claim that China’s government has chosen a productive path, enabling increased GDP measurements to be achieved. Also, many might say China is not a lone dog and that all economic movements can affect economies across the globe. Therefore, many countries are involved in a global restructuring process.
THE RELATIVELY SMALL CYRP COMPANY CAN ASSIST CHINA IN TRACKING SHIPMENTS
CYBRA Corporation (CYRP.OTC) is a leader in bar code and RFID technology, focused on design and service of electronic data systems, similar to companies like BIO-key International, Inc. (BKYI) and Zebra Technologies Corp. (ZBRA). Just recently, CYBRA Corporation entered into an agreement with the Chinese Waterborne Transportation Institute (WTI) and Key West technologies, LLC. Forming a joint venture with the People’s Republic of China Ministry of Transportation will provide great opportunities for CYRP. China based companies can look to CYRP for assistance, providing a more effective process of managing cargo.
Electronic data systems offered by CYRP may provide Chinese companies with the ability to monitor all cargo shipments, enabling operational costs to be minimized. Stolen cargo results in $30-50 billion per year losses, while an estimated $38 billion per year is concentrated on managing empty cargo containers. Cargo products ca be directed, monitored and measured when using CYBRA’s electronic data systems. RFID applications can be used in enterprise supply chain management, enabling companies to implement a more efficient tracking process.