China Reality: Boom, but Also Some Gloom

Many expressed exasperation with the breakdown of a sense of community, noting that while families are still close-knit, few knew or cared much about their neighbors. In just a week, I witnessed several acts of open interpersonal hostility, including one screaming match in which a woman tore a branch off a tree to threaten another woman.

To be sure, I also witnessed and experienced incredible kindness and generosity -- and was delighted to walk through a major park on a Saturday to find hundreds of people engaged happily in a dizzying variety of sports and hobbies in small groups, from folk singing to cards, tai chi and local versions of hacky sack, badminton and tennis.

Infrastructure Issues

If the government does decide to focus on reform to promote this sort of harmony, it may need to curb the construction of ports and railroads built for the convenience of its foreign business partners and turn its spending instead toward domestic improvements less immediately favorable to foreign investors, such as improved green belts, hospitals, schools and water systems.

This is certainly the outcome most optimists would like to see, but there is also the potential for a much darker path. Zhou notes that although Asia is now peaceful -- relative to the Middle East, anyway -- there is a "vacuum" that could be filled by the sort of nationalism that emerged in Germany in the 1930s. Already there have been protests against Japanese companies. If pressed, the country's clever propaganda machine could refocus its citizens' antigovernment anger toward South Asian, American and European interests. Despite its tremendous size, after all, China is very resource-poor -- and if its leaders find themselves cornered, they may well feel the need to reach out and grab energy, food and water supplies through force. The People's Liberation Army is the world's largest, although it is said to be relatively ill-equipped. That may be purposeful. In a sign that the government does not trust its soldiers, few of the security forces on the street carry weapons.

For now, though, there's no need for investors to get overly concerned about the potential for violence, as the stakes are high and domestic reorganization and improvement is much more likely. Your strategy to take advantage of China's pain and promise does not need to be complicated.

Consider shares of major international cement, steel and construction companies, including such Europe-based heavy industrial firms as Metso(MX) of Finland, ABB(ABB) of Sweden and Siemens(SI) of Germany. Smaller companies to put on your list should include pollution-control systems maker Fuel-Tech(FTEK), water-pump maker Franklin Electric(FELE) and water-systems provider Pentair(PNR).

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