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The Biggest (And Getting Bigger) City You’ve Never Heard Of
August 19, 2010
Deep inside China, the city of Chongqing is growing so fast that maps are out of date the moment they’re printed. Even for a country busting at the seams with development, Chongqing is exceptional—it’s the world’s fastest growing city.
From just 200,000 people in the 1930s, the city’s population has ballooned to 32 million and there are no signs of slowing – the metropolitan area absorbs an additional 1 million people every year.
Like many other places in China, this high-speed transition has overwhelmed infrastructure and the very idea of “city planning.” An article about Chongqing in the latest issue of Foreign Policy magazine likens the city’s growth to “a railroad car hurtling down the line at the same time that attendants scramble to hitch on the wheels and lay the track.”
Speaking of laying track, $1.5 billion is to be spent on the city’s light-rail system and $1.2 billion on other rail lines this year, Foreign Policy writes. On top of that key infrastructure outlay, $2.3 billion is going to highways and a massive project is under way to double Chongqing’s airport capacity to 30 million passengers by 2011 and 70 million by 2020. Financing for these and other projects is a mix of government and foreign investment.
On the jobs front, the local government slashed corporate tax rates to 15 percent (the national rate is 25 percent) to woo foreign corporations. That appealed to Hewlett-Packard, which is setting up shop in the area.
The “Chongqing model,” as it is called, has quadrupled the city’s GDP since 1998 to $86 billion. Currently, the city’s per capita income is only $3,300 a year, well below Beijing’s $10,000 level.
Chongqing’s robust weapons, motorcycle manufacturing and chemicals factories aren’t cheap-labor exporters to the developed world. Nearly 90 percent of the industrial goods produced in Chongqing are kept in the country.
This is a good example for the Beijing government to point at as it works to transition China from an export-led economy to one built on domestic consumption.
Read more about investing in the China Region.
Read “Chicago on the Yangtze” from Foreign Policy Magazine
By clicking the links above, you will be directed to the Foreign Policy website. U.S. Global Investors does not endorse all information supplied by this website and is not responsible for its content. None of U.S. Global Investors family of funds held any of the securities mentioned in this article as of 6/30/10.
Chart of the Week: China’s Energy Needs
August 18, 2010
All indications are that China will see a GDP growth slowdown through the end of 2010 as the Beijing government works to take some of the heat out of property prices in the country’s key cities.
We see this short-term slowdown as a good thing in the longer term because, by acting before there’s an economy-wrecking crisis, China can position itself for a more sustainable growth pace going forward. This means a lesser reliance on exports and fixed-asset investment, and more emphasis on the domestic sector.
This chart from Deutsche Bank, which appeared in U.S. Global’s weekly Investor Alert, shows the progression of China’s crude oil imports going back to 2002.
As you can see, the trend—represented by the red annual average lines—shows that China is importing three times more crude than eight years ago to support its economic growth.
Last month’s imports (the farthest right vertical blue line) show a steep fall off from June’s levels, and PetroChina forecasts slow growth through year-end as industrial production and GDP growth fall off.
But in 2011, Deutsche Bank’s analysts say, the story gets better. Refining capacity is scheduled to expand beginning in September, and these refineries will need more imported crude to operate.
The International Energy Agency (IEA) predicted last week that China will use more than 9.3 million barrels per day in 2011, up 4.5 percent from this year. The IEA says China will account for one-third of new crude oil demand next year.
Another driver for imports: China is building its strategic petroleum reserve and will add 40 million barrels worth of storage capacity in the first half of 2011.
Read how China factors into our Case for Natural Resources.
The following securities mentioned in the article were held by one or more of U.S. Global Investors family of funds as of 6/30/10: PetroChina
Being Contrarian on China
August 13, 2010
The news and analysis about economic conditions in China has turned decidedly negative of late after the latest round of key indicators – GDP growth, imports, fixed asset investment and industrial output – showed signs that a broader slowdown could be coming.
The discussion has had a very short-term focus, while the Beijing government has taken a longer view by taking some of the hot air out of the property sector to head off the kind of 2008-09 bust that dragged down the U.S. and Western European financial sectors and eventually their economies.
Others (including us) also take a longer view – here’s a sampling of analysis that doesn’t share the same dire outlook as is dominating the mainstream.
BCA Research: “Chinese banks’ total lending to the property sector has been increasing in recent years, but banks’ credit exposure to the property market is very low compared to other major economies. The large down payments of mortgage borrowers provides a significant buffer between banking sector assets and property prices.”
ISI China Research: “China’s fiscal revenue in the first seven months of this year was 26 percent more than those in 2009 or 2008… yet spending only increased 17 percent … the fiscal strength is impressive. Beijing will have a lot of fiscal ammo in (the second half of 2010).”
CLSA Asia Pacific Markets: “The upside of slowing data is that the potential for further tightening measures recedes even if Beijing is not yet ready for outright easing.”
Rupee Gets a Symbol
July 26, 2010
India’s rupee is now in an exclusive club – it joins Japan, Britain, the European Union and the U.S. as the only currencies to have globally recognized symbols.
The new symbol, shown in the picture, came out of a contest held by the Indian government that attracted more than 3,000 entries. A student at the Indian Institute of Technology was the winner.
Along with its role in global commerce, the new symbol will standardize currency communication across India, where 15 languages are commonly spoken. The government also hopes the symbol will set it apart from other countries with currencies of the same name, among them Pakistan, Nepal, Indonesia and Sri Lanka.
The rupee symbol combines ancient Hindi script with the letter R. The parallel horizontal lines at the top are a reference to the Indian flag and to the nation’s efforts to promote equality among its people.
India’s $1.2 trillion economy is the 10th largest in the world. That wealth, however, is not spread evenly among its people. The country ranks 139th in per-capita income, and some 450 million people – 40 percent of the population – live below the poverty line.
As bad as this number is, it used to be much worse: 90 percent of Indians were below the poverty line in 1980.
But if India is to meet the high expectations many have for it, it has to aim much higher than just the poverty line. The government must have effective policies to build much-needed infrastructure and stimulate the growth of India’s middle class.
This is the strategy that worked for China, and we think it could work for India as well.
China’s Currency Move a Success
July 20, 2010
When the Chinese government changed its currency policy last month to allow appreciation of the renminbi (Rmb), skeptics like New York Times columnist Paul Krugman called the move a lame ploy to placate U.S. and European critics ahead of the G20 summit.
It appears this judgment may have been too quick and too harsh.
The renminbi gained 0.70 percent against the U.S. dollar in the first couple of weeks after it was unpegged from the dollar. That works out to an annualized rate of about 15 percent—a monumental move in the currency world.
In fact, CLSA’s Andy Rothman says that the policy change has been so effective that Beijing will actually have to curb renminbi appreciation to keep it at the annual target rate of 5-7 percent.
Rothman points out that the immediate appreciation is far higher than the average monthly rate seen in the 2005-2007 period (chart), when the renminbi’s exchange rate was last allowed to float.
The soft U.S. job market has been focusing blame on China for the decline of American industry, but Rothman reminds us that the U.S. manufacturing sector has been shriveling for more than half a century – from 23 percent of American workers in 1949 to 16 percent in 1989 (when Chinese imports were still “insignificant”) to 9 percent today.
The Chinese government has much higher aspirations than being the world’s factory of cheap goods. This year we’ve seen the government raise minimum wage requirements across the country and move to improve labor conditions.
This is all part of a longer-term plan to move up the manufacturing food chain and build a stronger base for domestic consumption. A stronger renminbi that enhances the purchasing power of both Chinese importers and the average citizen fits well into that vision.
Net Asset Value
as of 09/02/2010
- Global Resources Fund
PSPFX $8.72 +0.08 - Gold and Precious Metals Fund
USERX $17.25 +0.18 - World Precious Minerals Fund
UNWPX $19.21 +0.13 - China Region Fund
USCOX $8.50 No Change - Eastern European Fund
EUROX $9.05 +0.03 - Global Emerging Markets Fund
GEMFX $8.15 +0.01 - Global MegaTrends Fund
MEGAX $7.67 +0.03 - All American Equity Fund
GBTFX $19.86 +0.15 - Holmes Growth Fund
ACBGX $15.79 +0.19 - Tax Free Fund
USUTX $12.61 No Change - Near-Term Tax Free Fund
NEARX $2.27 No Change - U.S. Government Securities Savings Fund
UGSXX $1.00 No Change - U.S. Treasury Securities Cash Fund
USTXX $1.00 No Change