Is The New China The Real McCoy? (Part II)

Last week I wrote about Hong Kong and its ability to pretty much stay a capitalist economy. In fact, in mainland China they refer to their countries economic policies as, "one country, two systems." Today we're going to talk about the other system that I call "The New China."

<<<<< This is the new MarketClub Chop in Mandarin Chinese

Besides seeing the historic sites with my wife, we traveled quite extensively covering  over 3,500 miles in the new China. I not only want to share with you my travel thoughts on some of these amazing historic sites, but also my thoughts on the Chinese economy. I am also going to let you in on an easy way to figure out what's going on in China at any time.

So let's get started…

I first wanted to go to China to see for myself what was happening and how serious the Chinese economic revolution was it really going to take over the world… I came away after spending 2 1/2 weeks in the country with a very mixed feeling on what's happening now and what I believe is going to happen in the future.

So let's start at the beginning of my journey. My wife and I flew from Dulles International Airport directly to Beijing, China. The journey by air was 8,989 miles and close to 14 hours flying time!

Upon arriving in Beijing Capital International Airport, we moved through customs and security checks. Like any major international airport security is tight and in some ways Beijing was even stricter. After passing through customs and security we were greeted very cordially by our English speaking guides and the folks who we were joining on this trip.

Normally my wife and I travel pretty much by ourselves, but this is China and I was advised that we needed to have an English speaking guide with us at all times. This was perhaps some of the best advice we received before our trip. Unlike Europe and other travel destinations, China is not a country that you can easily travel around in without a guide. The language barrier is insurmountable for most of us.

Our Young,  Attractive, Talented Interpreter "Jenna" >>>>>

Beijing is the capital city of China. With a population of around 20 million, it rivals Shanghai in size.  Over the last decade Beijing has grown dramatically with new buildings, new squares, and international businesses sprouting up left and right.

Being able to speak Mandarin Chinese, which is what they use on mainland China, is incredibly important as very, very, few people speak English. Neither my wife nor I speak Chinese so we were advised that if we venture out from our hotel, to be sure to get a card indicating directions for the taxi driver to get you back to the hotel. Even that was a challenge, as many taxi drivers are not familiar with all the changing parts of this rapidly growing city.

My wife and I were lucky enough to visit some of the great sights in China, including Tiananmen Square and the Forbidden City. I've always wanted to go to the Forbidden City and perhaps the reason is just the name itself, Forbidden.

We arrived at Tiananmen Square in what can only be described as horrendous weather.  It was a cold day with driving rain and a wind that was strong enough to blow out umbrellas. However, the Forbidden City did not disappoint.  If you're not familiar, it is an extraordinary series of buildings that reflect China's amazing history.

<<<<<Forbidden City

The next day we were off to see another Chinese icon, the Great Wall. The Great Wall was an important part of Chinese history and one that I have wanted to see for many, many, years. The day we visited the wall was sunny, but unusually cold and there was actually ice on the wall which made climbing up and walking on the wall quite challenging. The good news was it wasn't raining. Standing and walking on the Great Wall you are overcome with the mystique of history and this amazing feat of engineering.  The Great Wall stretches from Shanghai in the east, to Lop Nur in the west, along an arc that roughly delineates the southern edge of Inner Mongolia.

You have to be dead not to be moved by the sheer size and the amount of workers it must have taken to construct this mega project that stretches for over 5,000 miles. One amazing fact about the Great Wall is that it is not built on flat land, but on the top of mountains. It is definitely something to see if you ever get the chance to go to China. It is also a great money earner for China, as you have to pay to walk on the wall. That, along with the ever present vendors who want to sell you something for "just one dollar" makes the Great Wall like an ATM machine for the country.

Great Wall >>>>>

One of the claims that the New China makes is that it has over half of the worlds construction cranes. From my perspective, this was one of the first clues that perhaps things weren't quite as rosy as the world was playing them up to be for China. During our stay there we saw literally hundreds of construction cranes, however we did not see many of these construction cranes in action, nor did we see lots of construction workers on building sites. You would think in a country with a population of 1.3 billion that you would have at least have a couple of hundred workers or maybe 1,000 workers working on one of these buildings. That was not the case and was pretty much true of every building site that we witnessed throughout China during our stay.

Our next adventure was to fly from Beijing to Xian. Xian is considered one of the birthplaces of civilization. This area has seen 3,100 years of development and 13 dynasties, giving it equal fame with Athens, Rome, and Cairo as one of the four major ancient civilization capitals. The main reason for visiting Xian was to see the UNESCO World Heritage site of the incredible Terra Cotta Army. Here we saw thousands of soldiers, archers, horses and chariots that were buried with the Emperor Qui Shi Huang more than 2,000 years ago.

<<<<< Half Buried Terra Cotta Archer

We also had the good fortune of meeting the original farmer who discovered this treasure trove of antiquity while he was digging a well for water in 1976. I have more to say about water later in this piece. (see photo)

While this site is amazing to behold, for China it is also a great earner. I made a quick estimate and this tourist attraction brings in at least $100 million a year just in admission fees alone. This does not include ancillary hotel stays, food, drink and souvenirs. This attraction along with the Great Wall and the Forbidden City are major income producers for the New China.

Next we flew off to Chongqing, which is perched on the steep steps at the confluence of the Yangtze and its major tributary, the Jialing River. This proud city was the capital of China during World War II when the American volunteer group, the Flying Tigers, were based there.

This is a typical Chinese toilet >>>>>

The city of Chongqing is hilly and you will not see a single bicycle in this city. We had heard that Chongqing is shrouded in mist most of the time and I must say it lived up to its reputation the day we arrived. We boarded our cruise boat around 3 PM, just time to wash up, take short break, and meet for dinner later. It was interesting at dinner as I looked out into the night just how few lights were on in any of the new buildings. This is another China conundrum as we are talking about hundreds of buildings that are not occupied and show no signs of life. I found this one fact at odds to conventional thinking and very strange.

Our 5 day cruise down the Yangtze River was delightful and we saw many smaller cities or towns - anything under 7 million is considered a smaller city in China. However, we did see the dichotomy of China with people washing their clothes in the river and buildings that were far from spectacular. In fact, you could call them shanties. China still has a long way to go and a lot of work still left to do.

There is also a tremendous amount of traffic on the Yangtze River. We are talking about big barges moving coal, the principal source of energy in China, and other materials up and down the river. At any given time, our guide who spoke beautiful English, told us that there are at least 4,000 vessels going up or down Yangtze River.

Commercial River Traffic >>>>>

<<<<<< Washing Clothes in the River

The principal purpose of taking the Yangtze cruise was to see the famous Three Gorges. Here you will see some of the most beautiful scenery in all of China and on planet earth.

After some time cruising down the river, we arrived at the Three Gorges Dam. This dam is the largest hydroelectric power station in the world and this massive project is expected to become fully operational by 2011. What was interesting to me was the fact that if this dam, for whatever reason ever gave way, it would pretty much wipe out 300 million Chinese that live downstream. That's not a misprint. That's 300 million people! Let's hope we never see that happen as it would be a catastrophe of epic proportions.

One of the most interesting and delightful things we had the good fortune to do on this trip was to visit an elementary school that our cruise ship sponsored. This was in the country away from all the glitz and glamor of the big city. It finally provided us with a real opportunity see the other China, to meet local children, and gain insight into the education in rural areas. I have to say that the Chinese children that we met were well-mannered and totally adorable. None of them spoke or understood English, nor do we speak Mandarin, so we were left to smile, point and communicate in any way we could.

<<<<<Back in School

After leaving the Three Gorges Dam, we boarded the boat again to continue cruising down river to the city of Wuhan. In Wuhan we visited its world famous museum and viewed some wonderful artifacts dating back to the warring states. Afterwards, we rushed to catch a flight to Shanghai.

Three Gorges Dam >>>>>

Shanghai is a city I've always wanted to go to and I certainly was not disappointed. Shanghai is the world's busiest port, China's largest city, and the center of finance and trade.

We arrived in Shanghai just as the Shanghai World's Fair/World Expo was ending. This Expo apparently this was a very successful and attracted hundreds of thousands of people. Many of the displays the you saw in Shanghai said, "Better City, Better Life."  (see photo)

Okay, so I have given you the tourist perspective, but let's take a look at what I saw and what I believe is going to happen in the New China. I'm also going to show you an easy way to find out what is really happening in China.

<<<<< New Shanghai

Old Shanhai>>>>>

POSITIVE: Here you have 1.3 billion people in an area that's about the size of the United States.  That to me is a positive, but it's also a negative.

POSITIVE: The other thing that struck me the thousands and probably millions of new trees have been planted in China. It came as a real surprise to me at just how green Beijing and Shanghai actually are.  My guess is all these trees have been planted to counteract the very serious pollution problem China is currently faced with.

POSITIVE: A huge trainable work force that is capable of working for low wages much like workers did in America at the beginning of the last century.

NEGATIVE: China has only 13% of it's land mass where it can raise crops to feed its population. This could be a real challenge for China in the future particularly if there is a crop failure.

NEGATIVE: The other challenge for China is going to be fresh drinking water. It is one of the reasons why China controls Tibet. China's fresh water supply flows for 6,300 kilometres (3,915 mi) from the glaciers on the Tibetan Plateau in Qinghai eastward across southwest, central, and eastern China before emptying into the East China Sea at Shanghai. China's million-dollar question - how do you supply 20 percent of the world's population with only 7 percent of the Earth's water resources?

NEGATIVE: Smog problems are confronting both Shanghai and Beijing as these cities still rely for the most part on coal fired energy to create electricity. The demand for energy is increasing so rapidly in China that the initial estimate in 1993 that The Three Gorges Dam's energy production would satisfy 10% of China's total energy needs. With a total of 26 turbines, each generating 700 megawatts, the dam will have a total generating capacity of 18.2 million kilowatts.  The dam will generate as much energy as 18 coal power plants and will have 20 times as much power capacity as the Hoover Dam in the US. The rate of energy production, equivalent to burning 11,000 barrels of oil per hour, is enough to supply Beijing with power for one year.

Unless you live under a rock, you've seen news of China's booming economy and its currency, the yuan. There is no doubt in my mind that the Chinese marketplace will place a big role in markets across the world in the coming years.

There are of course many other positives and negatives for China, but one of the easiest ways you have to tell what is going on economically in China is to apply MarketClub's "Trade Triangles" to the Shanghai index.

As a member, you can click on the link below and analyze this index at any time. If you're not a member, click on the second link which will allow you to use MarketClub's Trend Analysis feature and give you a daily alert on the status of this index or any other market you choose.

MarketClub members you should click here.

If you're not a member the you should click here.

The Easiest Way To Decipher the Chinese Economy >>>>>

Looking at a country's index really does tell the economic story of that country at that moment in time.

I am writing this on Tuesday, November 16th, and the longer term trend remains positive for the Shanghai index based on our "Trade Triangle" technology. However, we received a weekly "Trade Triangle" exit signal on 11/14 at 374.76 indicating to be on the sidelines at the present time.

MarketClub's "Trade Triangles" move with the market and that's the key to being successful as a trader. You move with the market, you don't fight the trend.

I hope you've found my views of China informative and thought provoking. I strongly recommend that if you have the opportunity to visit China, you do so.

I also hope that you apply our "Trade Triangle" technology to the Shanghai Index and any Chinese stocks that you're looking at. The future is the future and there will always be great opportunities in China and the world.

I am confident that the MarketClub approach will lead to financial success for you.

Every success in the future,

Adam Hewison
President of INO.com
Co-Founder of MarketClub

19 thoughts on “Is The New China The Real McCoy? (Part II)

  1. A very informative article for those who have not been. The pictures were good too! From what you write about the buildings being empty; looks like they are spending there money elsewhere instead of growth and energy solutions. Surely with billions they would be able to construct decent power plants for themselves but I guess the people do not count. Perhaps this will change in the future for both the government officials and the average citizen. Good of you to share informative knowledge of your trip in China regarding your perspective of their economy. I have been looking for some investments in China with all the hype and there are thousands but I have my eye on two small ones and would like to share them and are named Eds exceed a clothing company and cvvt that is a valve company that is state owned and does not ship to the USA for tech design secrets etc. I have only done research on these but if anyone wants to elaborate more in depth they are more than welcome to. Thanks for the great pictures maybe the weather will improve next trip. Mk

  2. I just returnede from a Viking cruise that seemed to mimic your trip.
    I was in the Forbidden City and Tinneman Square on a 30+degree day with a driving rain that turned all the Ritz Carlton umbrellas inside out. The next day at the wall was sunny, cold, and a brilliant blue sky.
    We added a week in Hong Kong because my brother-in-law insisted and I anm glad he did.
    We also did a crane count as well as a CAT equipment count.
    I was impressed with the amount of new infrastructure that appeared so new and apparently developoed over the past 6 years.
    PS Your blog was sent to me by one of your subscribers.
    Thanks for your insight.
    Allen Shevach

    1. Allen,

      Sounds like we were there on the same trip at the same time. Where are we going next?

      Thanks for your input.

      Al the best,
      Adam

  3. Great review of what is going on behind the news in China. The question is "Will the dragon's fire go out?" WEW

  4. Hey Adam... really really enjoyed reading about your experience and insights. Your trip was much like I hope to take sometime in the future.
    Thank you so much!!

    Best, Russ

    1. Russ,

      My wish is MarketClub makes you all the money you need to take you on a first class trip to China.

      All the Best,

      Adam

  5. I visited Beijing in 2008, after the Olympics, but during Golden Week. Totally fell in love with China, which is why I track and trade several China ETFs (of course, using THE system). One thing I came away with was I felt that the Chinese (especially in Hong Kong) seemed more capitalistic than we are here in the U.S. Much more aggressive in their marketing. Very interesting in a so called Communist country. I too, noticed the non moving construction cranes, which is why I watch the Chinese real estate ETFs very carefully and with tight stops. I think China will have its growing pains, as you pointed out, and I really would like it to not be like the U.S. After all, why would I fly half round the world to visit a mall that I could just as easily drive to in the U.S. (sort of my experience in HK). But thanks for the very interesting insights.

  6. Just curious, Adam, what do you attribute the lack of workers and inhabitants on the new buildings going up?

    Ken

  7. Just curious, Adam, what do you attribute the lack of workers and inhabitants in the new buildings popping up.

    Ken

  8. Adam:
    Right on with your description of China pluses and minuses.That was great. I agree that a local guide is a must in traveling through China. Anyone that is able should make a trip to China sometime as a high priority. Their future impact on the world economy is and will become even greater in the future. Also recommend a side trip to Lahsa, Tibet if possible.As an alternative to flying, China now has a high speed train to Lhasa going over a 16,000 foot pass before dropping down to 12,000 feet at Lahsa. Tibet, for better or for worse is now fully integrated into China's economy and will probably never be able to separate. Like you said, China is too dependent on their resources.
    Don D

  9. Thank you Adam for your insight and comments! Hope you and your wife enjoyed your trip! Cheers, Allan

  10. Excellant, excellant review of your trip Adam. Just want to say I truly appreciate it.
    I have read of the ceasing of construction activity and myriad of empty buildings.
    Is China ready for a severe fall?
    Also water production and pollution control companies operating in China may be investment opportunities.

  11. Bonjour Adam,

    Hope that you and your wife are doing well.

    Just wanted to thank you for taking the time to write that long paper on your trip to China. I thought it was extremely interesting. It definitely gives a different perspective to what we have been accustomed to read in the mass media about the ¨Chinese miracle.¨

    Talk to you soon.

    Loic.

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