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China Investments

Six Ways to Profit as Consumerism Supplants Exports and China Throttles Up GDP Growth

BEIJING, People's Republic of China – There's something inherently satisfying about waking up on a clear, crisp fall day in this bustling capital city, and seeing this headline atop the lead story in this morning's China Daily newspaper:

"World Bank Sees Change in Growth Pattern"

In essence, the World Bank has finally acknowledged what we've been telling you for several years – that China's accelerating domestic growth is already reducing its once-almost-total reliance on exports.

This is an important validation of our investment strategies and of China's newest economic policies. Investors who see and understand these developments can expect to enjoy some significant long-term successes.

For six ways to profit from this new Beijing policy, please read on...

Money Morning Mailbag: China Needs to Boost Domestic Demand to Continue Economic Recovery

China released data this week showing its economy grew 9.6% in the third quarter from a year earlier, slower than years past but still significantly ahead of other countries that are struggling to stabilize their economies.

A slight dip in growth is what China wanted. Its gross domestic product (GDP) has grown on average more than 10% annually since 2006. The country's central bank lifted rates this week by 0.25 percentage points for the first time since 2007 to further cool the risk of overheating.

While working to maintain a healthy level of growth, China now has to contend with other countries devaluing their currencies to compete against a cheap yuan that is fueling an export-driven recovery. However, the whole world can't depend on exports – somewhere along the line there must be growth in demand.

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Currency War: China Stands Firm on Yuan as Global Criticism Escalates

Germany and Japan are joining the U.S. in pressuring Beijing to let the yuan appreciate to prevent an international currency war from spiraling out of control. Still, China remains firm that a gradual rate change is all it will allow.

German Economy Minister Rainer Bruederle warned yesterday (Wednesday) that a trade war could erupt if China didn't float its currency for a more fair value. As the China-U.S. currency tensions have heated up, other countries are saying China's unfair trade advantage is threatening export-driven recoveries around the globe.

"We have to take care that the currency war doesn't become a trade war," Bruederle told German business paper Handelsblatt. "China bears a lot of responsibility for ensuring that it doesn't come to an escalation."

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Controversial House China Tariff Bill Will Take America Down the Wrong Road

The U.S. House of Representatives this week overwhelmingly passed a bill that would enable the Obama administration to impose punitive tariffs on almost all Chinese imports into the United States – a controversial move that's intended to punish China for refusing to revalue its currency.

The House China tariff bill faces opposition in the Senate and from the Obama administration and isn't expected to become law. Let's hope that reluctance continues to hold: This bill is little more than a political con job and is quite possibly the stupidest thing that Washington could do right now.

Not only will this touch off a war the United States literally cannot afford to fight, but it's going to hamstring millions of already cash tight Americans by raising the cost of living dramatically while further eviscerating our already fragile gross domestic product (GDP).

Let me show you why…

To understand the hidden costs of the China tariff bill, please read on...

What's In a Name: Can the U.S. Afford to Call China a Currency Manipulator?

It seems like every six months the debate over China's currency, the yuan, reaches a fevered pitch: The Washington bureaucrats threaten to label China a "currency manipulator" and Beijing threatens to dump its U.S. debt holdings.

Then, with the imminent approach of a major inflection point – be it a key international summit or major financial report – both sides grudgingly agree that a modest appreciation of the yuan would be mutually beneficial.

However, things could be slightly different this time around. China has routinely ducked calls to revalue its currency, and in doing so greatly agitated the West.

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China Trade Surplus Reignites Tensions Over the Yuan

China in August posted its third straight trade surplus of more than $20 billion, putting friction with the United States over the nation's currency back in the spotlight.

Exports rose 34.4% in August and imports climbed a greater-than-expected 35.2%, leaving the country with a $20.03 billion surplus, a customs bureau report showed Friday.

But a sustained trade gap with the United States could embolden American lawmakers who are pushing to penalize China for what they consider unfair trade practices.

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China Leapfrogs Japan and is Now the World's No. 2 Economy – And is Gunning for the No. 1 United States

As the old Avis rental car slogan used to say: "When you're No. 2, you try harder."

With the growth rates that its economy has turned in the past few years, no economist could ever accuse China's leader of not trying hard. China now claims to have jumped over Japan to take over the No. 2 spot in the world economic pecking order.

China's next target: The No. 1 U.S. economy.

In fact, some experts believe that China could catch up to the United States' $14.4 trillion economy in as little as 10 to 15 years.

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Commodities Are Key as China Continues to Call the Shots

China ended up being the big story this month, as investors looked past Europe to the Far East for clues about what shape the global recovery – if you can even call it that – is taking.

Markets around the globe tanked yesterday (Tuesday) after the Conference Board revised its leading economic index for China to show the smallest gain in five months in April. The index rose just 0.3% in April, which was a significant reduction from the 1.7% gain the Board reported on June 19.

The news of the error contributed to the biggest sell-off in Chinese stocks in more than a month, and sent U.S. indices into a dizzying downward spiral. The Dow Jones Industrial Average plunged 268.22 points, or 2.65%, to close at 9,870.30 and the Standard & Poor's 500 Index tumbled 33.33 points, or 3.10%, to close at 1,041.24.

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We Want to Hear From You: Are You Worried About China's Currency Rise Sparking Inflation?

After months of intense political pressure, China announced Saturday that it would allow its currency to gradually appreciate against the U.S. dollar. China's currency – the yuan – has been pegged to the American greenback since 2008.

"This is going to lead to a transition from export-lead, investment-lead to more of a consumption-lead economy going forward," Jing Ulrich, chair of China equities and commodities at JPMorgan Chase & Co. (NYSE: JPM), told CNBC. "I think the ramifications are profound not just for the next few months but actually for the coming years."

Not surprisingly, U.S. exporters embraced the news as an opportunity to compete against Chinese companies and to reduce the U.S. trade deficit. Foreign nations, including the Untied States, have accused China of undervaluing its currency to give its exporters an advantage in global trade.

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China's Exports Surprise Contradicts the Critics

Chinese exports in May posted a 50% gain over last year, blowing away estimates and suggesting that the risk of a Chinese economic slowdown is overblown, Reuters reported, citing anonymous sources.

China's official export numbers will be reported tomorrow (Thursday) as part of broader trade data, but had been expected to rise 32% year-over-year after recording 30.5% growth in April.

Chinese economic figures are often leaked widely in markets and government circles ahead of their official release, and are sometimes subject to last-minute revisions.

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