China's Aggressive Moves Are a Profit Catalyst Here

The other day, I pointed out some low-risk ways Americans can profit on the bull run underway in China - a market also buoyed by stimulus and a flood of cash coming in from the sidelines.

But I also warned of some very serious issues between the United States, the rest of the world, and China.

Europe's reopening, America's further slide into COVID-19, and the upcoming election have dominated headlines and news screens for weeks now.

As Big Media relegates China to the status of "background noise," there's a lot you're not hearing about China right now.

It's my job to address that and show you how you can position yourself for profits amid chaos that's going on practically behind our backs right now.

China Is Having an Unsettling Moment in the Sun Right Now

We ignore China at our own peril. Its draconian measures aimed at "crushing the curve" appear to have succeeded, though we may never know the full human cost.

What's clear is the Chinese government is taking full advantage of the global disarray caused by the pandemic.

But, let's be clear: 2020 was always going to be a big, rising year for China. Even before COVID-19 struck, China's diplomatic and military stance was growing more assertive, even belligerent.

The ruling Chinese Communist Party (CCP) was founded in 1921. That makes 2020 the last year when China's achievements can still happen in the CCP's first 100 years.

To you and me, that may not seem like much of a reason to do anything, but China plays a "long game." The 100-year milestone is very significant, much more so than to us Americans, with our constant speculation on what presidents or legislatures will do in their "first 100 days."

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China's ruling party needs symbolism like this more than most. After all, the CCP is nowadays communist in name only. The party has long since abandoned that particular ideology, in favor of a state-controlled capitalist economy.

That's come with the welcome appearance of the 400 million-strong Chinese middle class. There have been huge, concurrent drops in poverty, starvation, and disease.

But without an ideology, the only thing keeping the CCP in charge is continued economic growth and displays of power. So it's no surprise that both have become cornerstones in Chinese President Xi Jinping's rule.

In fact, back in 2012 when Xi was first made head of the CCP, the party decided that by the centenary year of the party's founding, China was to double its income per capita from 2010's levels.

The clock is ticking; Xi has less than six months to accomplish this feat, despite the havoc the COVID-19 pandemic has wrought on China's economy and trade.

And it's not like anyone is going to forget this goal. During his tenure, Xi has incorporated this centenary goal into every aspect of the CCP's propaganda, news, slogans, and party training.

And it's not just about the economy, either. One hundred years after the party's founding, the pressure is on Xi to show that the CCP can restore China to the position of power as the "Middle Kingdom" that's been central to China's national psyche for close to 7,000 years.

Especially as Xi has grabbed more power for himself than any previous Chinese leader since Mao Zedong himself.

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In only the last few months, Xi has launched or reinvigorated six aggressive strategies to put China on top:

The South China Sea: As the United States grapples with surging coronavirus infections, China is making ever more aggressive moves in the disputed South China Sea area, to the detriment of neighboring countries like Taiwan, the Philippines, Vietnam, Malaysia, Brunei, and Indonesia - not to mention the United States. The region provides China access to world markets, and around $3 trillion in trade moves through it. The U.S. Navy has deployed the USS Nimitz and USS Ronald Reagan aircraft carrier strike groups to the region, but China isn't backing down.

Espionage: There is a comprehensive Chinese espionage program underway, aimed at gathering technology, against the U.S. public and private sector. China has been implicated in both the 2017 Equifax and 2015 Anthem breaches, which together exposed the data of nearly 228 million Americans.

The reciprocal closings of consulates in Houston and Chengdu over this issue show it's escalating; according to the FBI, the agency is now opening a new China-related counterintelligence case every 10 hours.

What's more, China's tech giant, Huawei - a major provider of mobile smartphones even in the West, has longstanding, close ties with China's military and intelligence apparatus; it's been instrumental in establishing surveillance and "re-education" programs in China's restive Xinjiang province, as well.

In May, the U.S. Department of Commerce made it illegal to sell hardware or software made using U.S. intellectual property to Huawei. This effectively bars Huawei from making Android smartphones and most other modern technologies, much as a similar ban on ZTE did in 2018.

Hong Kong's dwindling freedoms: There have been draconian new "security laws" put in place in the former, autonomous British colony, which is of course a critical global economic command center.

The Joint Sino-British Declaration, which laid out the framework of 1997's handover from the United Kingdom to China, specified Hong Kong would be a "Special Autonomous Region," able to continue under its British-style common law legal system, with a free press and freedoms of expression and association. This was to have lasted until at least 2047.

No more: China has long kept its "thumb" on the scale in Hong Kong, mostly through interference in elections. Previous attempts to enact "national security laws" were swiftly met by furious, sometimes violent organized popular protests. COVID-19, however, brought the city-state to its knees, giving Xi all the opportunity he needed to crack down and get these laws enacted. They are a significant escalation in that 23-year history of interference. It's now illegal to criticize China in Hong Kong, and Hong Kongers arrested for doing so can be taken back to the mainland for "trial." Dissident leaders have fled, opposition parties have closed up shop, and hundreds have been arrested by the newly empowered police force.

The United States revoked Hong Kong's special trade status, making it, in effect, just another part of China. The U.K. and European Union have lodged protests, too, and many multinationals and banks are openly speaking of pulling out.

But for Xi Jinping, it's an unalloyed victory - for which he's unlikely to face consequences.

Taiwan: The U.S.-allied Republic of China was established on the island of Taiwan, across the Formosa Strait from mainland China, by the nationalist Kuomintang party - the nominal "losers" in the Chinese Civil War. Since its founding, it has had an altogether different history than the People's Republic.

Although Taiwan has never forthrightly declared its independence, its history is a burning embarrassment to the CCP. It's a reminder that the Party doesn't control all of China, and, since the 1990s, it's living proof that a stable, strong, and prosperous Chinese democracy is possible.

The CCP reacts angrily to any suggestion that Taiwan is or ought to be recognized as a sovereign state; the Beijing government, which has more recognition worldwide, insists that Taiwan is no more than a "rebellious, breakaway province" and that "reunification" is inevitable.

Big Western companies have been forced to perform elaborate public apologies to China for even hinting that Taiwan is an independent nation.

Beijing's hostility has run the gamut between just shy of shooting war to chilly tolerance for Taiwan; the two have trade and travel ties now, for instance.

Right now, in the wake of COVID-19 - which the Taiwanese government crushed - hostility is flaring up again. Taiwan can see perfectly well what's happened in Hong Kong, and that's made enthusiasm for full, formal independence grow.

Taiwan's well-equipped and well-trained military would still not stand a chance in a protracted war with the People's Republic's overwhelming number of soldiers. In theory, Taiwan's de facto independence is guaranteed by the U.S., but the White House has largely remained silent on the issue.

Expect tensions here to ramp up, as Xi looks for a clear win to shore up his support and "unify" China in time for the 100th anniversary of the CCP.

Fighting on the "roof of the world": India's Kashmir border dispute with Pakistan usually draws more attention, but since just after the CCP came to power in the 1950s, China has been a party to the three-way regional conflict - a dispute in which all concerned have nuclear weapons. India and China have gone to war in the past, but an uneasy peace defines the status quo at the inhospitable, Himalayan hotspot. China has built a highway through Indian Ladakh, and military strategists in Beijing view the highway as essential to Chinese security, as it provides a speedy route between Xinjiang and Tibet - two of China's most restive, rebellious territories.

But the fight heated up in a gruesome, explosive way in June, when 20 Indian border troops were attacked and murdered by Chinese troops. Beijing denies it, but it seems likely at least some of the attackers were killed in the assault. As firearms are forbidden at the shared border, the Chinese were reportedly armed with "trench clubs" - clubs with metal spikes.

Border skirmishes don't usually turn into geopolitical crises, but, as I said, China, India, and Pakistan are armed with nuclear weapons.

Raising the stakes even higher, more than 2 billion people in Asia rely on Himalayan water for irrigation, power, and, of course, drinking. This is an extremely sensitive region, and it appears Xi is content to try and shift the balance of power his way.

Trade "gamesmanship" with the United States: For all of 2019, stock markets rose and fell on every single development in the U.S.-China trade war.

Eventually, the countries reached a "Phase One" agreement, where America lowered tariffs on Chinese products in exchange for Chinese promises to buy $200 billion more U.S. goods over the next two years and to "do more" to protect American companies in China from patent and copyright theft.

But China does not seem to be living up to its promises. China is still buying less U.S. soybean than before the 2019 trade dispute. Pork purchases have quadrupled, but because of Chinese tariffs, U.S. farmers are still getting less money on the trade than Spanish farmers, for example.

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Meanwhile, there is no sign that China is importing more manufactured goods from the United States. Boeing's 737 Max debacle means America isn't exporting many airplanes to China, while Tesla and other car manufacturers now make cars for the Chinese market in Chinese factories, not in American ones.

With tensions between the U.S. and China rising even as President Xi gets away with more and more, he may well decide sabotaging or even scuttling the trade deal would be a convincing show of power.

This Trade Should Soar on China's Aggressive Stance

Now, in the short term, all six of these aggressions will play very well in China's state-controlled media. Any defeats or losses will be covered up. But victories will be celebrated as proof that the CCP and Xi are one and the same, essential for China's prosperity. This will keep supporting China's rallying stock market, as well as the country's general sense of bullishness.

And, despite the building tensions, all-out war between India and China, or China and the United States, is very unlikely; the economics don't favor war, and the addition of nuclear weapons into the mix make it that much more unlikely.

The benefits of continued trade are too good to give up.

That said, in the short term, I believe China's aggressive behavior will be difficult for the United States and its allies to oppose, particularly during a raging pandemic, and with elections coming. That's bullish in the short term for three stocks that I've mentioned to you recently - Apple Inc. (NASDAQ: AAPL), Nike Inc. (NYSE: NKE), and the China-based play, JD.Com Inc. (NASDAQ: JD).

For the intermediate term, the American company with the highest exposure to China is Skyworks Solutions Inc. (NASDAQ: SWKS). This company gets more than 80% of its revenue from sales into China. The stock is at a clear decision point on the chart:

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I've been watching this stock for my paid-up Dark Edge Project members, monitoring the flow of capital in and out. Interestingly, a large series of big, bearish trades on this stock were executed in the "secret" stock markets - dark pools - recently. That makes SKWS a prime candidate for 60- to 90-day puts, and even short selling. Your stop-loss signal would be two closes above the July 22 intraday high.

You can click here to learn how to get access to all my Dark Edge Project research and alerts.

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About the Author

D.R. Barton, Jr., Technical Trading Specialist for Money Map Press, is a world-renowned authority on technical trading with 25 years of experience. He spent the first part of his career as a chemical engineer with DuPont. During this time, he researched and developed the trading secrets that led to his first successful research service. Thanks to the wealth he was able to create for himself and his followers, D.R. retired early to pursue his passion for investing and showing fellow investors how to build toward financial freedom.

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