How Do Job Cutbacks in China Relate to Your Investments?

HOW DO JOB CUTBACKS
IN CHINA RELATE TO
YOUR INVESTMENTS?
By www.ProfitableInvestingTips.com

http://profitableinvestingtips.com/profitable-investing-tips/how-do-job-cutbacks-in-china-relate-to-your-investments
China has been the economic miracle
of the world for decades.

From Nixon’s visit in 1972 to its entry
into the World Trade Organization to
the current day, China has not had a
negative growth year since 1978 and
has average a 10% GDP growth rate.

At the same time North American and
Europe are ecstatic with an occasional
5% growth rate and typically languish in
the 2% to 3% range.

But, things are not all well in the Land
of Managed Capitalism (by the
Communist Party).

Debt is rising and there is a potential for
a long term trade war with the USA.

Meanwhile, small and medium-sized
businesses are laying off workers in
China.

For many of us, China seems to be a
long way away.

So, how do job cutbacks in China relate
to your investments?

Small and Medium-sized
Business Downsizing in China

The South China Morning Post is
beginning a series about the China
economy.

Chinese President Xi Jinping warned
on January 21 that the Communist
Party needed to pay particular attention
to the risks to social stability from rising
economic problems

as evidence increasingly suggests that
the nation’s employment situation is
deteriorating rapidly, particularly among
small and medium-sized businesses.

An important aspect of this situation in
China is that the prospect of a
significant economic downturn is not
just that there could be a recession or
even an “economic hard landing” but
that it could lead to significant social
unrest.

The article goes on to give examples of
companies that have reduced their
labor forces by more than 75%!

The end result is survival, not
repayment of debts or prosperity.

Closed Factory in China

Chinese economic statistics have
always been suspect, so anecdotal
evidence is often relied upon to get an
accurate picture of what is going on.

What is known is that China has taken
over a lion’s share of production in
many industries from the rest of the
world.

Seventy percent of world electronic
production capacity now is in China and
the risk of a permanent trade war is
taken very seriously, especially
considering the amount of debt that
companies and whole industries have
taken on.

As noted in the South China Morning
Post article, many smaller Chinese
businesses got into the habit of simply
borrowing, expanding, and having
enough money to service their debts.

Now the world is changing and
companies are downsizing very rapidly.

How Do Job Cutbacks in
China Relate to Your
Investments?

China ADRs

The first point of concern would be
investments that you might have in
Chinese companies.

Investing.com lists 403 Chinese
companies with ADRs available in the
USA.

If you are invested in any of these, you
need to do your fundamental
analysis and make sure if you want
retain the investments in your portfolio
or not.

If you do not believe that you can do an
accurate job at this because of sparse
data, it might be better to sell.

Offshore Investing

The next issue is any other investment
you might have offshore from the USA.

We recently wrote about how offshore
investment in Brazil was starting to
look promising with the new
government.

But, Brazil and other exporters of raw
materials will all have the same
problem if China experiences a
significant economic slowdown and
quits importing at its current rate.

The resource curse of boom and
bust cycles is inherent in commodity
exporters.

There are relatively secure value
investments offshore but you need to
do your homework to find them and to
assess their intrinsic value.

Direct Foreign Investment as a
Guide

To know where to put your money
offshore, a useful resource is the World
Bank’s Foreign Direct
Investment page of statistics.

The most recent figures show that
worldwide foreign direct investment
was $2 Trillion in 2017, down from $2.5
Trillion in 2016.

China received $168,223.58 million
($168 Billion) in 2017 versus
$354,828.00 ($355 Billion) for the USA.

Meanwhile the European Union as a
whole received $604,920.21!

And Brazil came in at $70,685.05. It
would appear that as the world
economic situation worsens that money
is flowing into developed economies
more so than developing economies.

Since this is where the smart money is
going, smart investors will probably
follow suit.

The World Bank updates these figures
every year so it is always a useful
resource for those wanting to invest
offshore.

How Investments in the USA
Will Be Affected

An old friend of ours recalled when the
stock market crashed in 1929 and all of
the businessmen in his small
Midwestern town were not worried.

New York was a long ways away and
what happened there would never
affect the prices of corn, soybeans,
beef, pork, or eggs.

Three years later our friend was
burning corn cobs in his stove to keep
the office warm because corn was
cheaper than coal.

The US Congress has picked a trade
war with the Smoot Hawley Act and the
US economy entered the Great
Depression.

Great Depression Lineup for Free Food

If you think that what happens in the
country that consumes more natural
resources than anyone else does not
matter in the rest of the world you are
dead wrong.

Companies like Boeing, 3M, Procter &
Gamble, Deere, Caterpillar, Apple, and
many many others derive a substantial
portion of their incomes from trade with
the rest of the world and with China in
particular.

When a company in China lays off 700
of its 1,000 workers, those workers
have no jobs or take lower-paying temp
jobs.

The effects ripple through the economy
and more companies lay off more
workers and the downward cycle
continues.

The growing Chinese economy has
been a consumer of many Western
products.

We in the West would like to have more
access their economy and that is a lot
of what the looming trade war is all
about.

The risk is that China will not open up
to the West but will look inward instead.

Apple already downgraded its
projections for China for the coming
year.

This is how job cutbacks in China relate
to your investments if you have
multinationals in your stock portfolio.

Trouble in China will spread to many
developing nations and sales of goods
by the USA will suffer.

The one bright spot for the USA and
other developed economies is that
foreign direct investment and cash via
the Forex market will seek safe havens
in these economies.

What Can You Do?

Some time back we wrote about how
to invest without losing any money.

As economic risks increase a wise
investor will rotate part of his or her
holding into AAA bonds (Microsoft and
Johnson & Johnson, US Treasuries,
and even CDs at the local bank.

Any stock investments should be value
investments until the economic
situation in China and elsewhere
improves.

If the economy and market worsen,
there will likely be quite a number
of deep value investments for those
willing to do their homework.

How Do Job Cutbacks in China Relate to Your Investments?

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How Do Job Cutbacks in China Relate to Your Investments?