Is a Booming Chinese Infrastructure Good for Your Portfolio?

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Photo Credit: China Economic Net

A credit fueled expansion of the Chinese economy is sending its commercial and infrastructural businesses into overdrive.  A combined effort of more than 13.6 trillion yuan (4 trillion in stimulus and 9.6 trillion in bank lending) has sent developers back to work building up the country’s infrastructure.

Ambitious Projects

At the pinnacle of any government assisted boom is a new record-breaking project.  The Burj Khalifa, built during the height of the oil bubble, exists as the largest building in the world, but China is now building its own rival.   In the city of Huaxi, perhaps the epicenter of the real estate boom, a new 1760 foot tower, one-third of a mile high, will be built right into the skyline.  The cost?  6 billion yuan, which is government-funded, of course.  The payoff?  An abundance of new office space and ability to claim the second largest skyscraper in the world.

It Doesn’t Stop at Skyscrapers

Beijing is getting a new 2 billion yuan high speed rail system.  Another project to complete a new bridge to safely send travelers on their way is being completed in Jiuanyang on top of an already existing safe bridge.  Even state-owned media is disgusted with the project, which required the demolition of a perfectly strong and able bridge to create a new one at the cost of several million yuan.

Property values in China have grown 10% nation-wide from January 2009 to January 2010, with the most populated areas surging in value, while rural areas remain under-priced and under-developed.

Sheltering in China

Investors in China should carefully consider at least a partial shelter of safety with their Chinese investments.  Though the economy is growing at a near 10% annual clip and property prices are rising equally due to new bids from state-owned enterprises, the possibility for slowdown is assured.

Astute investors may be better off forgoing the hugely profitable infrastructure and development industries in favor of lasting profits.  Major exporters appear to be on fire-sale as cash flows into government inflated industries, but it will be the infrastructural development firms that fall flat when the stimulus is gone, whereas China’s export economy should only strengthen with the global economy.

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