Hustle the East – MoneyWeek

Quick,namethatcountry。

Ofcourse,itcouldonlybeChina。

Ivespokenonanumberofradioshowsoverthepastfewweeks。

TheNo。

1topicofconversationis,withoutadoubt,allthingsChina。

Peoplewanttoknowwhatitallmeansandhowitaffectsus。

Theywanttoknowwhatishappeningoverthere。

Whatshappeningisastaggeringamountofgrowth。

HowrapidlyisChinagrowing?

TakethecityofShenzhen,forexample。

Thereisnoprecedentforit。

InAmericanhistory,Chicagowasoneofthefastestgrowingcitiesinthecountry。

Ittook50yearsforChicagotorecorditsmillionthresident。

Shenzhendiditinsideadecade。

In25years,itgrewtobeacityof7millionpeople,whiletodayitsitsasChinasfourth-largesturbaneconomy。

Chinasmassiveurbanizationismindboggling。

Today,aboutthreeouteveryfivefarmersintheworldisChinese。

Butthatisrapidlychanging,too。

TheChineseareheadingforthecities。

Whereasonlyabout36%ofthepopulationcurrentlyresidesinChinascities,thatnumberisexpectedtoswelltoover45%by2010and60%by2030。

ChinaisbuildinganinfrastructureaboutthesizeofHoustonseverymonthtoabsorbthe300millionpeopleprojectedtomovetothecitiesoverthenext15years。

AsIsaid,itsmindboggling。

Butthatgrowthisnotwithoutitsstrainsandstresses。

Chinaspowerneedsdwarfitsabilitytoproduceit。

Itscitiesaresubjecttooccasionalblackoutsandbrownouts,plannedandotherwise。

Bysomeestimates,Chinahasonly80%oftheenergyitneeds。

ChinaaddselectricaloutputtheequivalentofGreatBritainseverytwoyears,yetnewinvestmentcannotkeeppacewithdemand。

Thereareotherissues,ofcourse,likeawfulpollution,extremepovertyintheinteriorofthecountry,awretchedbankingsystemandmore。

Thentherearethepoliticalquestions。

Beijingloomslargeonthescene,inawayWashingtonneverdidduringAmericasboomingindustrializationperiod。

SowhataretheinvestmentimplicationsofChina,then?

Thatiswhatweareherefor,no?

InvestingdirectlyinChinahasntworkedoutformost。

Itsbusinesslandscapeislitteredwiththecorpsesoffailedjointventures,theshatteredglassofbrokendreamsandaresidualsmearofcynicismaboutChinascomplexbusinessenvironment。

OneAmericaninvestordescribedChinaastheVietnamofAmericanbusiness。

DespiteincrediblegrowththeChineseeconomygrewbymorethan50%from2000-2004theChinesestockmarkethaslostathirdofitsvalue。

Thispartlyhappenedbecausetheaveragelistedsharetradedfor60timesearningsin2000。

Theywereexpensiveandpopular,andmostlyunprofitableforinvestors。

Still,theriseofChinahaschangedthepatternoftradeandisshapingtheworldsmarketsinnumerousways。

Alwayslookingforvalue,IvecometodistrustinvestingdirectlyinChina。

ThebestwaytotakeadvantageofChinasprosperityistothinkofthelong-termeffectsontheglobalmarketplace。

Forexample,intheFebruaryissueofmyFleetStreetLetter,IrecommendedafertilizercompanycalledAgrium(AGU:NYSE)thatrecentlycrossedoverfromsmall-captolarge-capstatus。

Onthebig-picturelevel,IwroteabouthowincreasingprosperityinChinabutalsoinplaceslikeBrazilwillhaveanimpactonwhatpeopleeat。

Therearelotsofgooddatatosupporttheideathatincreasingprosperitytendstocreateashifttowardmoremeatconsumption。

Peoplegetalittleextramoneyintheirpocketandtheydecidetoeatporkandchicken。

Well,increaseddemandformeatleadstoincreaseddemandforlivestock。

Livestockhastobefed,sothedemandforcornincreases,sincecornisanimportantlivestockfeed。

Theincreaseddemandforcornleadstoincreasingdemandsforfertilizers,becauseofalltherowcrops,cornhasthehighestfertilizerapplicationrate。

AllthiswaspartoftherecommendationofAgrium,theresultofasimple,step-by-stepreasoningprocess。

Plus,thesharesweredarncheap。

Today,thestockisup29%forFleetreaders。

Inanyevent,Iadvisereaderstobecareful。

DontthinkthatmakingmoneyinChinaisgoingtobeeasy。

IvehearditsaidthattheonlypeoplegoingtomakemoneyinChinaaretheChinese。

Whilewitty,itmaywellturnouttobelargelytrue。

AbitofversebyRudyardKiplingalsocomestomind:Andtheepitaphdrear:AFoolliesherewhotriedtohustletheEast。

ForPennySleuth,