Four Ways to Profit from China's Poker Face

By Keith Fitz-Gerald
Investment Director
Money Morning/The Money Map Report

A longtime investor in Japan who is familiar with how closely the companies there work with their government "minders" recently asked me if the same thing was true in China.

It's absolutely true, but the level of direction - rather than cooperation - makes Japan positively appear laissez-faire by comparison.

Consider the 2003 book entitled "Practical Manual for Party Propaganda Work" published by Red Flag Publishing House. It's a thinly veiled policy statement aimed at doing business with foreigners and serves as the de facto guide to how China's Communist Party wants things done when it comes to presenting China in a most-favorable light.

Here's a summary of the advice as assembled by noted China analyst David Cowling. Not only does it speak volumes about what China wants presented to the world; it also details what it wants achieved.

Consider these tips:

  • Speak simply, [even] oversimplify if necessary. Deliver a message easiest for the foreigner to receive. This will vary according to what country or region they are from.
  • Never use slogans. Propaganda with foreigners should be less direct than domestic propaganda. Present facts, let them draw their own conclusions.
  • Arrange interviews for friendly foreign journalists.
  • Through Xinhua [the state-run news service] if appropriate, arrange for articles by Chinese to be published by foreign media.
  • When scheduling tour groups, strive to arrange a schedule that will give the best impression of China. When these people return to their countries, they can help form a positive impression of China in the minds of the people of the world.
  • Attend to programs shown on the television systems of hotels frequented by foreigners so that a positive impression of China will be given.
  • Arrange for tour guides and interpreters to subscribe to PRC foreign language publications.

This all sounds pretty innocuous until you realize the forward is by none other than Hu Jintao - as in China President Hu Jintao.

In Western terms, this would be like President George Bush issuing a national press directive regarding what can and can't be reported - with guidelines for the content that actually makes it into print or out onto the air.

On the surface, it's enough to make a free-press society foam at the mouth, but to longtime Asian observers like ourselves, it's simply a roadmap - for global success.

[In an interesting side note, at a time when there's more of a need for global communication and understanding than ever before, every country in the world except one is either cutting back on - or ending outright - their government-sponsored international shortwave broadcasts. That includes Great Britain's vaunted BBC and the U.S.A's Voice of America.  The one exception is China, which is actually boosting its broadcasts of news, documentaries and propaganda to the rest of the world.]

All of this - from the directives to the boosted world band radio broadcasts - provides a clear and intimate look at how China intends to do things. In one sense, it's a game plan focused on victory - measured as global economic success. In another, it's a lot like a poker "tell" in that it reveals a great deal about China's intentions and future courses of action.

And, as is always the case when it comes to investing, that inside insight can lead to significant profits at an acceptable level of risk if you search out companies positioned to profit "because of" China.

Consider this point: Many Chinese, including leading party members, want a more democratic society. Yet, they fear that modernization will spark social unrest.

Therefore, they place great emphasis as a nation on controlled growth, which to us suggests that infrastructure investments are a solid play. The reason: Having a solid infrastructure is one of the easiest ways to prevent the social strife that has destroyed so many civilizations throughout history.

The trick is that many companies inside China are in the wrong place at the wrong time. Despite their rush to get a stock listing and their seemingly unstoppable potential, they're actually merely biding time before they are plowed under by more-modern, better-capitalized and better-managed overseas rivals.

Yet there are other firms - such as Huaneng Power International Inc. (HNP), China Southern Airlines Ltd. (ZNH), Vale, formerly Companhia Vale do Rio (RIO), and ABB Ltd. (ABB) that stand at the crossroads of potentially lucrative government contracts that will provide these firms with solid growth for years to come.

Furthermore, by virtue of their involvement with key elements of China's infrastructure, these firms will either drive additional growth, or benefit directly from it, creating further investment gains from the raging growth created by an emerging middle class that's 300 million strong - and growing.

And that brings us full circle.

In its attempt to control state media and set the standard for external communication, China's government is telegraphing where it intends to take things.

Not surprisingly, that's just where we want to be as investors.

And in the weeks and months to come, we'll take you there.

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About the Author

Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.

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