Open Book: Don't Ignore the China Threat

Calculate the China threat in the investing equation.
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The Coming China Wars

describes how the emergence of China as an economic superpower has given rise to a host of conflicts between China and the rest of the world and within China itself.

As I illustrate in

this book

, by the iron laws of economics, China has put itself on a collision course with the rest of the world. Because of these iron laws, the coming China wars will be fought over everything from decent jobs, livable wages and leading-edge technologies to strategic resources such as oil, copper, and steel and eventually to our most basic needs -- bread, water and air. Unless all of the nations of this world -- including China -- immediately address these impending conflicts, the results will be catastrophic.

I wrote

The Coming China Wars

in the hopes of averting that catastrophe. But to fully understand the genesis of the book, it's important to first understand what I do.

I'm a business professor at the University of California-Irvine and, besides conducting research, I teach macroeconomics to MBA students, many of whom come from China (both the People's Republic of China

PRC and Taiwan).

Over the past seven years in those duties, it has become crystal-clear to me that virtually no macroeconomic or stock market subject can be discussed without including the China piece of the puzzle. Whether the subject is job or wage growth, inflation, currency fluctuations, the conduct of discretionary fiscal or monetary policy, the impact of the burgeoning U.S. budget and trade deficits, or whether the U.S. stock or bond markets will be bullish or bearish, all economic roads lead to China.

Given China's importance on the world economic stage, it was natural for me to shift my research focus to China. What I saw was far more disturbing than encouraging. Indeed, while American politicians, policymakers and journalists have been dangerously preoccupied with events in the Middle East, China has emerged, largely unchallenged, as an economic superpower with an ever-growing ability to exert significant influence over U.S. economic, financial and political institutions.

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Before I expand further on the growing dangers of America's loss of economic and political independence to an emergent China, allow me to offer one additional biographical note that may be of interest to

TheStreet.com

readers and help explain my motivation for writing

The Coming China Wars

. I publish a free weekly investor newsletter published at www.peternavarro.com.

This endeavor is dedicated to a "George Soros/Jim Rogers" type of analysis. That is, I look at how broad macroeconomic trends such as China shooting down a satellite in space or a move by the Bank of Japan to raise interest rates will affect U.S. stock and bond prices as well as currency exchange rates.

My broader point here is that any investor who truly wants to understand how broad market trends will be affecting financial markets must inevitably become an astute and dedicated China watcher. Reading

The Coming China Wars

-- and the many books I cite -- will go a long way toward helping

TheStreet.com

readers in that endeavor.

My book will also help you understand more about the risks (and potential rewards) of investing not just in China, but globally.

As for the three main takeaways of

The Coming China Wars

, let me offer the following:

1. China's emergence as an economic superpower is creating conflicts around the world over energy and other natural resources; grain, soybeans and other agricultural products; environmental resources and regional air basins; and, of course, world markets. Understanding these conflicts will make you a better investor by attuning you to how these conflicts will affect the supply and demand of key resources and the cost structures of companies.

2. The chronic trade imbalance between China and the U.S. is leading to a loss of American economic, financial and political independence because of how China is strategically recycling surplus dollars back into U.S. bond and stock markets. Understanding this dynamic will help both stock and bond investors spot market trends and potential turning points. Currency traders will likewise be better able to anticipate market moves, while U.S. policymakers should be motivated to address the unfair trading practices of China that are giving rise to the projection of Chinese power.

3. China is hardly as politically stable as the popular mythology of an omnipotent Communist Party would suggest. As I illustrate in several chapters discussing China's "wars from within," protests in China are rapidly growing over issues ranging from rampant government corruption and growing income disparities to land seizures, horrific pollution and a collapsing health care system.

Investors, therefore, need to understand all the risks of a China investment strategy.

Peter Navarro is a business professor at the University of California-Irvine. He is the author of the path-breaking management book, "The Well-Timed Strategy," and the bestselling investment book, "If It's Raining in Brazil, Buy Starbucks." His unique and internationally recognized expertise lies in his "big picture" application of a highly sophisticated but easily accessible macroeconomic analysis of the business environment and financial markets for investors and corporate executives. Navarro's articles have appeared in a wide range of publications, from Business Week, the Los Angeles Times, The New York Times and The Wall Street Journal to the Harvard Business Review, the Sloan Management Review and the Journal of Business. Professor Navarro is a widely sought after public speaker. He has appeared frequently on Bloomberg TV and radio, CNN, CNBC, and NPR, as well as on all three major network news shows. His free weekly investment newsletter is published at

www.peternavarro.com

.