Investors Should Looking Beyond the Political China-Bashing

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Chinese and U.S. flagsFew items inspire bipartisanship in Congress like China. Democrats and Republicans like to shelve their differences to bash the emerging giant instead. And as President Hu Jintao met with President Obama in Washington, D.C., this week, both sides are out in full force.

Democratic Senate Majority Leader Harry Reid and Republican House Speaker John Boenher, for example, skipped out on a state dinner for Hu. Democratic Senator Chuck Schumer again accused China of stealing American jobs, while Republican Representative Dana Dorhrabacher went as far as calling the Beijing government a "gangster regime that murders their own people."

The grandstanding and theater is understandable enough for politicians facing an electorate battered by the Great Recession. China offers a convenient scapegoat for America's many woes.

More Than Just Exports

But investors would be wise to look past the heated rhetoric. While politicians in the U.S. like to portray it as a burden, China's blistering growth is instead a major factor for the growth in global demand. That helps generate the strong results that companies continue to deliver as earnings season kicks into high gear.

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And China isn't about only exporting. Its imports posted an annual gain of $389 billion to total $1.36 trillion in 2010, Jim O'Neill, chairman of Goldman Sachs Asset Management, wrote in a research note this week. Chinese imports amount to 23% of its GDP, compared to about 16% for the U.S.. At $184 billion last year, China's trade surplus actually tumbled to 3.8% of its GDP compared with 11% three years ago.

"Who says China grows at other's expense?" O'Neill wrote.

Chinese consumption tends to get overshadowed by the country's overall growth rate. "The reason why the level of reported consumption seems to be a relatively small share of GDP is not necessarily because the Chinese consumer is repressed," O'Neill wrote. "Rather, it is simply because other parts of GDP rose even faster in the past decade."

Continued Hot Growth Is Likely


While the China growth story should be familiar to investors, its magnitude is stunning nevertheless. China's GDP has expanded to $6 trillion from $1.5 trillion 10 years ago. A decade ago, the Chinese economy was smaller than Britain's. But it has since expanded at a pace equivalent to two British economies since.

As China's accelerating GDP figures on Thursday showed, that growth is likely to keep rocketing.

Judging by consensus nominal estimates -- which include items like the impact of inflation and a 3% annual rise of the yuan versus the dollar -- that would be like creating an economy equivalent to the size of South Korea, O'Neill wrote. "China will be creating another Growth Market all by itself this year."

That kind of growth makes the country an easy target for U.S. politicians. Investors, though, should recognize also consider its impact on corporate profits.
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