By Chris Devonshire-Ellis

Oct. 30 – As regular readers of 2point6billion.com will know, the stacking up of China against other countries in Asia has been taking a battering recently. An economy too far slanted towards export manufacturing, a government caught on the hop, and an overabundance of egos when it comes to promoting China as being able to topple the United States (forget about the rest of the world!) have all been part of the mix when it comes to trying to work out where China is. Add to that mix a resurgent India, and less expensive production bases elsewhere in Asia, and it’s time for some serious attitude between die hards, many of whom have vested interests in continuing to sell China in ways no longer appropriate. A quick overview of just these three articles will give you an idea of things:

Is China Heading for a Bubble Bursting Downturn?
(Economic re-balancing will take longer and cost more than originally thought)

Remodeling China: The Bear to Watch
(China changing from export manufacturing to a more balanced economic model)

China FDI Plateaus as Investment Demographics Shift
(The nature of FDI investment into China will and is changing)

Yet still, the mainstream news generally perceive China’s 9.8 percent growth this year as fact, which is odd given that historically press reaction to Chinese figures has usually been bemusement and accusations of fixing and inconsistencies. But hey, in a recession any news is good news, and the United States needs China to pull it out, and so not everyone is looking as deep on this occasion. The truth is, China is in trouble. Heavily exposed to an export manufacturing machine responsible for 40 percent of its GDP, and with factories left right and center laying off workers and closing down, the 9.8 percent makes no sense at all. If true, the implications must be that China’s previous GDP growth figures in the good times were not around 8 percent as was usually claimed, but must have been 19 percent plus annually. It’s clearly ludicrous.

Our position all along has been that China is changing, and that it is going through a re-balancing of its economy (which may take awhile) to move it away from exports and into a more consumer driven society. As a result, countries like Vietnam and India will pick up a lot of the export manufacturing work, and the reasons to be in China are changing. Not everyone agrees with that, which is why a rare China insightful commentary caught my eye today. Entitled “China’s Consumer Stock Gems,” Samantha Ho of Invesco argues that because China is now moving away from an export manufacturing base, opportunities abound for investors in selling to China. In it she identifies stocks that are worth getting into in China – and they’re all involved in sales. I couldn’t agree more. I’ve been banging my head against the wall the past couple of years about this, and it’s nice to see the theory gain some mainstream recognition.

The deal is this:

China
Now is the time to sell to China, and now is the time to invest in Chinese companies that are involved with that process. If you are an investor, a growing Chinese consumer market awaits you.

India
Now is the time to invest in infrastructure in India, and now is the time to invest in India companies that are involved in these areas. If you’re in anything related to construction, get on the first flight you can.

As we come out of the global downturn, we find that the nature of the investment game has changed. India has arisen and will take/needs a lot of the investment type that had been previously attracted to China with it. China has now moved on, (you don’t need any more infrastructure once you build a Maglev) and is offering opportunities more than ever to sell to its domestic economy. When two gigantic countries like that are simultaneously offering completely different types of opportunity and investment, the message is clear. The recession is dead. Long live emerging Asia, and welcome to two – and not just one – major player within them.

Chris Devonshire-Ellis is the founding partner of Dezan Shira & Associates and lived in China for 21 years. He is now based in Mumbai and can be reached at chris@dezshira.com.