Cashing in on China (part two)

Last Friday we brought you Chinese stock guru Jim Trippon’s thoughts on investment ideas in China and the outlook for the Chinese stock market (see http://www.smallcapinvestor.com/articles/04112008-cashing_in_on_china). Today, Trippon examines the larger economic picture, the future of China and how it will affect the U.S. economy.

Trippon, editor in chief of the newsletter China Stock Digest, runs the largest equity investment research firm in mainland China and advises corporate pensions, private trusts, and high-net-worth families on their China investment strategies. Trippon spoke with SmallCapInvestor.com’s Jennifer Schonberger last week.

“Chinese stocks have been a phenomenal alternative to U.S. stocks over the last three years. In 2006 we made a 39% return and last year we made over a 58% return in a year that was mediocre for the U.S. market. Although there is a linkage between the U.S. market and China’s stock market in the short term, when you begin looking over longer periods, our economies could not be going in more different directions. You’re seeing the end of the dollar as the world’s currency, you’re seeing the end of the United States as the world’s largest economy and, at the same time, you’re seeing the rise of China to replace both.

“It’s played out a lot because of our trade policies. China’s impact on the United States has actually contributed to our low cost of living by giving us consumer products at manufacturing costs that we could not duplicate here. Even if labor rates rise overseas, they’re not going to bring those parts back here. There’s no way that’s going to shift when the average auto worker in Detroit makes $50 an hour including benefits and the average worker in China makes $5 a day including benefits. It’s a mixed bag in that it’s good for the U.S. consumer to be able to buy cheap consumer products that cost less than they would have if they were manufactured here, but it’s arguably bad for our society to no longer have a middle class that’s viable.

“[China] is not too dependent on exports. For the past 30 years the country has been very dependent on exports and still is — [exports] are half of their economy, but each year it’s a lower percentage. That has a lot to do with the fact that not only have we exported our manufacturing business to China, but arguably we’ve . . .

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