This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Big Changes Are Coming to China

This historic, tremendously significant transformation was, sadly, reversed when the Hu-Wen government took over in 2002. The few surviving SOEs, though nominally "publically traded," quickly formed an untouchable alliance with the government and banks (mostly state-owned and publicly traded themselves) and dominated the landscape.

They are, of course, notoriously inefficient in every way except regulatory arbitrage and pluropoly. But they are the original too-big-to-fail. They have practically unlimited sources of cheap financing and monopoly-like pricing power. Life cannot be easier and more glorious than theirs anywhere or anytime on this planet.

Except it has led to enormous inefficiency and abuse in capital allocation and utilization, as well as contributed to rampant corruption and social discontent, in recent years. In every sense, the SOEs are the pinnacle of structural socioeconomic ills of China today.

If the incoming government manages to re-reverse the tragic trend of the past decade, there is actually a fair chance for the Chinese economic engine to keep chugging for a long time and for the country to continue its three-decade-old, historic transformation. The impact to the world cannot be over-estimated.

In comparison, the pathetic competition of "who talks tougher on China" during the presidential campaign is utterly irrelevant. The rational and wise approach is to embrace, encourage, and influence the transformation in China. But I suspect that's exactly what the U.S. will do, despite the president, whoever it may be.

In the short term, as policy thaws from cryogenesis, I expect to see Beijing taking some concrete actions in the weeks and months ahead. The yuan will probably be nudged lower in some ways. As inflation continues not to explode and fear of leakage from QE3 subsides, some form of monetary stimulus other than the timid reverse repo operations by the central bank, which has been the tool of choice during the cryogenesis, is likely to take shape.

The economic structural shake-up will probably start with the financial sector, with a myriad of regulatory changes. The net effect in the longer term, if successful, would be to stabilize the real-estate market, control growth of bad credit (mostly from local governments and SOEs), and increase market-driven competition in the financial sector.

2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
FXI $43.76 0.00%
AAPL $128.46 0.00%
FB $78.97 0.00%
GOOG $558.40 0.00%
TSLA $203.34 0.00%

Markets

DOW 18,132.70 -81.72 -0.45%
S&P 500 2,104.50 -6.24 -0.30%
NASDAQ 4,963.5270 -24.3630 -0.49%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs