All Roads Lead to Beijing
Section One:
We all know the China story. We see the consequences of it on our stock market five days each week, BHP and Rio Tinto rise and fall as commodity prices rise and fall. Even when the US market is rising and falling there is the tendency to draw everything back to China and its economic prospects.
All roads lead to Beijing.
The question which everyone wants answered is ‘Will China continue to grow?’ The Chinese government enforced the closure of many industries leading up to the Olympic Games as it attempted to improve the air quality for athletes. Now the Olympics are over it is game on again for China and for its industry.
The amount of construction in China cannot be overstated. It only took watching the Olympic road cycling races or the marathon on TV to see the sheer number of uncompleted building projects in Beijing.
Today in Shanghai, China’s tallest building will be officially opened. The 492 metre, 101 storey Shanghai World Financial Center is the worlds third largest building after the Dubai Tower and Taipei 101. According to the owner of the building, Minoru Mori “total office space in Shanghai is not so large, there is not enough taking into account the business potential of the city. If you supply a good space, then the demand will follow.”
We admit that a statement like that sounds like a property bust waiting to happen. But not yet. And possibly not for a long time yet.
One thing that is often overlooked is that China still has an enormous rural economy. A rural economy where the average annual income is little more than $600. Even in the urban areas the average wage is only about $2,000 per year.
China isn’t standing still. The wages growth for Chinese farmers was 10% for the first six months of this year. Rural wages will need to grow too.
The last thing that the Chinese government would want is for the countryside to be emptied. Now, that’s the extreme and in reality it isn’t going to happen, but the point is that rural wages cannot afford to be left behind. Rural Chinese citizens will need an ever greater incentive to stay rural as the cities become bigger and richer.
That among others is one of the next big challenges for China.
The Most Important Story This Week:
The gold price has rebounded recently following a brief period under USD$800. It wasn’t that long ago that it was trading above USD$1,000, so which way is the gold price going to go next? Money Morning technical analyst Gabriel Andre gave his view on that during the week. Gold to Test Support
Monday: Rule 1. When taking over as CEO of a company make sure that you shift the blame for all the bad stuff on the previous mob. ANZ in Denial
Tuesday: With net profit totaling just $556 million, down from just over $1 billion the previous year, Suncorp has maintained its dividend payment at $1.07, which means that it has a dividend payout ratio of 183%. Financials, Is It Safe?
Wednesday: just like the BHP Billiton results, much of the earnings increase has come as a result of commodity price increases. While that is fine, and it deserves it having suffered through periods of low commodity prices, there is little in the results that would convince BHP that it needed to pay any more than is already on the table. Rio Tinto Releases Results
Thursday: Macquarie may not have the same exposure to leveraged funds that Babcock & Brown [ASX:BNB] has, but it is still being dragged down nonetheless. It is going to take a complete cleanout of this sector before investors can start to have any confidence in companies that have any association with leveraged infrastructure funds again. Not So Big Macq
