Watch this short video on Jason USA LLC and the China Nightclub Industry

Click here to watch our video

THE FIVE THINGS YOU NEED TO KNOW ABOUT CHINA

By Keith Fitz-Gerald
Chief Investment Strategist
Money Morning/The Money Map Report

When it comes to China... The following Five China Profit Precepts not only bust a lot of widely held myths about overseas investing, they also lead to only one conclusion: If you’re a long-term investor, you can’t afford to ignore China.

I’ve detailed all of these for readers over the past year or more. But it’s now time to review each of these Five China Profit Precepts in some detail:

No. 1 – Consumerism is Taking Root: According to China’s National Bureau of Statistics, the country’s retail spending advanced 16.2% in October and should easily hit the 15% to 19% target for all of 2009 that we projected last year. Assuming the numbers play out as expected, when 2009 comes to a close, the aggregate increase in consumer spending in China will be larger than the retail spending growth in the United States, European Union and Japan combined.
All the right catalysts are already in place. Government stimulus programs – including rebates on “white goods” and tax cuts for low-emission vehicles – helped China’s car sales increase by 43.6% in October. China is now the world’s largest car market, having displaced the United States earlier this year. Sales of home appliances are also up sharply, rising more than 35%. Even real estate is on the mend, particularly in China’s western provinces.

Sign up below…and we’ll send you a new investment report for free: How China Is Axing the U.S. Dollar…

At the other end of the spectrum, government spending and industrial power production are up nearly 20% in just the last quarter alone. According to Carbon Monitoring for Action, China’s power consumption has nearly doubled over the last decade. Just to keep up, China builds a new power plant capable of handling Kansas City’s electricity needs every nine days. And a city the size of Philadelphia every 30 days.

Given the correlation between raw power consumption and economic growth, the frenetic proliferation of power plants is clear evidence that China is growing – not slowing. Beijing wants to make sure it avoids the extended energy shortages that can only choke off economic growth.

No. 2 – China is Ready to Serve: China’s service sector is now growing twice as fast as its construction and infrastructure segments. As the graphic below shows, more than 30% of China’s workers are employed in service-sector (tertiary) jobs.

And that’s only going to grow: Beijing has shrewdly directed huge portions of its stimulus package into the country’s service sector. That’s an important point. It’s part of Beijing’s push to stoke domestic demand, an initiative that will reduce its dependence on exports to a weakened West and transform China into a stronger, standalone economy.

The quality of the jobs employing China’s workers is also on the upswing. In China’s industrial (secondary) sector, for instance, non-state-owned companies employed more than 70 million people in 2008, the most recent figures available. That’s equal to about 80% of the country’s total industrial work force.

Then there’s the fact that China has created 7.57 million new jobs in the first eight months of this year. That’s 84% of the government’s national target for 2009 according to Huang Zhendong, chairman of the Committee for Internal and Judicial Affairs under the National People’s Congress (NPC). At current rates, China may create as many as 9.01 million jobs by the end of the year.

Compare that to the U.S. economy, which is dealing with a “jobless recovery,” as well as a current unemployment rate of 10.2% that’s expected to get worse before it gets better. Just yesterday (Wednesday), for example, we saw that private-sector employers eliminated 169,000 jobs in November. That figure, contained in the monthly Automatic Data Processing (Nasdaq: ADP) jobs report, was much worse than the 150,000 forecast figure floated earlier by economists.

No. 3 – There’s More to China Than Exports: One of the biggest myths about China is that it lives and dies by exports. In fact, PIMCO’s Gross said his bubble fears have been fueled by a concern that China is gearing itself up for an export market in which there won’t be many buyers.

Truth be told, net exports account for only about 20% of China’s gross domestic product (GDP) growth. Infrastructure and capital investment account for the rest. In other words, this is hardly a nation that will wither and die on the vine if the West stops buying, despite the widespread belief to the contrary.

This economic myth doesn’t withstand even minimal scrutiny. First and foremost, China’s markets are basically closed. So when Western pundits try to argue that a decline in exports will sink China’s economy, the numbers just don’t compute.

If anything, we are dangerously close to a situation in which the West’s purchases become irrelevant to China’s continued growth. The United States and other Western powers may need China, but as China’s consumer strength grows, it’s increasingly likely that the Red Dragon and its consumers won’t need us.

The issue that causes Beijing officials to lay awake at night is how much the country imports to fuel GDP growth. According to BNP Paribas SA (OTC ADR: BNPQY), China imports nearly 90 cents worth of goods for every $1 in exports. That means that – at most – there’s 10 cents worth of “flux” in China’s economy.

Therefore, the real question investors need to answer is how much China is bringing into the country, not what it’s sending out. Exports may be almost an afterthought at this stage of the game…not the do all end all they were in the late 1980s or 1990s.

No. 4 – China Has an Exit Strategy: Unlike its U.S counterpart, China included a tangible “exit strategy” with its global-financial-crisis stimulus initiatives, and is utilizing private spending to address any interim shortfalls.

On the other hand, the United States is trapped in an economic minefield of Washington’s own making. But China has gotten down to brass tacks and is already taking steps to exit the stimulus programs now in effect. For instance, as I’ve detailed for readers in recent months, Beijing has raised capital requirements for banks, raised lending standards and generally put the kibosh on easy money. That’s not to say there aren’t problems, but on an overall basis China is already well ahead of the curve. Beijing is even taking steps to slow things down – tapping the economy brakes, so to speak – and can boast of GDP growth of 9% or more even after the cheap money has been gently pushed to the sidelines.

Spending patterns have undergone a needed shift, too. In the old days, public spending and that of state-owned enterprises (SOEs) significantly outweighed private investment. But now, the two have flipped and private investment is higher than both state and public spending.

It’s a significant shift. The strength and direction of private spending may be the best measure of an economy’s durability because it expresses investor “trust” in a country’s financial system. There’s clearly a lot of this “trust” already in China – and it’s growing.

No. 5 - China’s Capital Reserves Give it Almost Unlimited Flexibility: $2.3 trillion. It almost needs no explanation. China saved $2.3 trillion for a rainy day. Now it can spend the money as its leaders see fit. Unlike its U.S. counterpart, which may be borrowing its way into oblivion, China’s government doesn’t need to borrow against its future just to survive the present. It can finance its plans, snap up valuable assets from sellers desperate to raise capital, and make investments that will maintain its enviable growth rate well into the future. There’s a huge difference.

No disrespect to PIMCO’s Gross, but the bottom line is this: Beijing’s stimulus and massive government influence has actually refined value, accelerated private investment and sped up the flow of money. And if that constitutes a bubble, so be it. There’s still plenty of money to be made if you know where to look.

Westerners have been predicting China’s demise for 40 years. And for 40 years, China not only refused to roll over or just go away, it has actually grown at an average annual rate of 9.28% as reflected by its GDP.

With its heavy debt load and self-made problems, the United States will be fortunate to maintain a fraction of that growth rate.

To be fair, Western pundits continue to allege that China’s numbers are “cooked” – as if to insinuate that its statistics are less trustworthy than ours. They’re probably right. But if the implication is that ours are somehow perfect, that’s not only ridiculous, it’s entirely naïve – as has been amply demonstrated by the likes of Enron, Worldcom and Bernie Madoff. And take a second look at some of the figures coming out of Washington these days.

As for the contention that China’s economic and stock-market growth rates are unsustainable, I can certainly envision a near term pullback. That’s normal for any financial market, including our own – which, I might add, looks mighty toppish right now.

But here’s the thing: When it comes to China, we’re investing for the long haul.

Bubble or not, in China you can invest, live through a pullback, and rest easier with the knowledge that there’s a $2.3 trillion tailwind driving your money. Here in the U.S. market, you can invest, live through a pullback, and lay awake at night knowing that you’ve got a decade’s worth of headwinds, a deficit of more than $1 trillion fighting any investment play that you make.

I know where I’ll be putting my money.

[Editor's Note: Keith Fitz-Gerald is the chief investment strategist for Money Morning and The Money Map Report. Fitz-Gerald has pulled all his best thoughts together in his new book

Euro zone officials: China yuan should strengthen

Euro zone officials say China should allow yuan to strengthen; stronger currency good for all

.

AP - Chinese Premier Wen Jiabao, right, and Jean-Claude Juncker, prime minister of Luxembourg and Eurogroup president, shake hands before ...

The plea to Chinese Prime Minister Wen Jiabao for faster movement on exchange rate reforms, to reverse the euro's climb against the yuan, or renminbi, came in meetings ahead of an EU-China summit on Monday in this eastern Chinese city likely to focus on the global economy and climate change.

European Commission President Jose Manuel Barroso joined financial leaders of the 16 countries that use the euro in impressing upon Wen and other Chinese economic planners the urgency for action to counter euro's rise against the yuan, which is linked to the weakening U.S. dollar.

"The fact is that because their currency is linked in some way to the dollar, this is causing problems in the European economy," Barroso told reporters after dining with Wen on Sunday.

Wen made no new commitments on hastening reforms of China's currency policies, he said.

Luxembourg Prime Minister Jean-Claude Juncker, who heads economic talks among the eurozone countries, joined with European Central Bank President Jean-Claude Trichet and Spain's Joaquin Almunia, the EU's monetary affairs commission, in calling for an "orderly and gradual appreciation" of the yuan.

As the dollar has weakened against the euro in recent months, so has the yuan, giving Chinese manufacturers an edge in overseas markets.

The upward pressure on the euro is a bane for exporting countries like Germany, the single-currency bloc's largest economy. The U.S. and emerging economies likewise complain the weaker yuan means Chinese products cut into their fair share of the global marketplace.

Barroso credited Beijing with helping the global recovery by powering its own rebound with a formula of massive spending, ample credit and policies aimed at stimulating demand.

But faster movement on the currency issue is needed to cope with wider trade, investment and spending imbalances, he said.

"Major imbalances because of trade or because of currencies can create problems in the future if they are not fully addressed," he said.

Faster change would give China more leverage over its own economic policy, and give its citizens greater purchasing power, boosting domestic demand -- a key requirement for balanced, sustainable growth, the European leaders said.

"It would be good from all angles of vision, the bilateral relationship, the multilateral relationship and, we trust, the interests of the Chinese authorities ... to have an orderly and gradual appreciation of the (yuan)," said Trichet.

China has pledged to allow the yuan's value to eventually be set by market supply and demand, but has balked at major changes its leaders say might destabilize the financial system.

"I can't say I am more optimistic than I was before I came here," Juncker said, though he added he felt the exchange was worthwhile.

After Sunday's meetings, the official Xinhua News Agency reiterated a comment by Beijing's vice foreign minister, Zhang Zhijun, pledging to "give play to the fundamental role of market supply and demand in setting the yuan exchange rate, and keep it basically stable around reasonable, balanced levels."

In the last month or so, the euro has risen to a 15-month high of $1.5061. Any successful intervention to stem the dollar's fall against the euro would need to involve the Chinese.

The yuan began gaining against other major currencies with a set of exchange rate reforms introduced in July 2005. But after rising nearly 20 percent against the U.S. dollar, the Chinese currency has hovered around 6.83 to the dollar for more than a year as Beijing sought to protect local exporters hammered by the global economic crisis.

On Friday, the dollar gained against the euro briefly as currency markets gyrated after Dubai World, a government investment fund with debts of about $60 billion, asked creditors to postpone payments until May.

But the reprieve for the euro was expected to be short-lived, given the immense borrowing needs of the U.S. government, which relies heavily on foreigners to finance budget deficits exceeding $1.4 trillion annually.

Any rise in the China Yuan would make your profits generated from Jason USA in China worth more when converted back to US Dollars!