There is a famous historical anecdote about Henry Ford.
According to the story, Henry paid his workers $5 a day so that they could afford to buy his car, thus assuring himself a market.
This is complete claptrap.
Ford paid his workers $5 a day because too many workers were telling him to stuff it and heading off to find better work…
Things were so bad that in 1913, Ford hired 52,000 men to fill 14,000 spots. Having a constant stream of new workers meant higher costs and slower production.
Ford correctly reasoned that paying his workers more would increase production and lower costs.
The year before the pay increase, Ford produced 170,000 cars. The next year, he made 202,000 cars. Both his profits and his margins increased.
Sometimes, if you pay up for quality, you have better results.
In other words, times were good for both workers and capitalists.
China’s Fight to Spend
Since 1978 when Deng Xiaoping declared that “getting rich is glorious,” China has been on an economic growth path featuring low wages and exports.
Five years ago, its end markets in the rest of the world dried up, and China attempted to switch to a consumer-based economy.
Before the great recession, China averaged 10% GDP growth for decades. The latest expectations are that China will grow GDP 7.7% in the third quarter, up from 7.5% in the second quarter.
Though total China GDP is down, it is growing much faster in the consumer sector.
A lot of this has to do with a boom in wages. According to Bloomberg:
Average pay in Asia almost doubled between 2000 and 2011, compared with a 5% increase in developed countries and about 23% worldwide. The gain was led by China, where average remuneration more than tripled during the period.
At the same time, inflation in China remains under control at 2.6% — which means workers are seeing real money in their pockets and are able to spend it. We know this because consumer discretionary is flying…
China’s movie box office sales jumped 36% in the first half of 2013 from the same period last year, while furniture sales rose 21%, according to government data. Both outpaced the 12.7% rise in retail sales. And Audi sold more than a million cars in China in the first eight months of the year.
I don’t know if you’ve been shopping lately, but Audis ain’t cheap…
The point is there is plenty of real growth in China — if you know where to look.
Check out these three stocks:
SouFun Holdings Ltd. operates a real estate Internet portal and home furnishing and improvement website in China. The company provides marketing, listing, e-commerce, and other value-added services and products for China’s real estate and home furnishing and improvement sectors. Its share price has doubled since June.
Bidu is often quoted as being “the Google of China.”
The Great Wall Motors Company is moving up because it said it would sell 700,000 units this year, up from 620,000 units in 2012.
This is just a small sampling of the consumer stocks booming in China recently.
The smaller stocks are doing even better…
One Chinese stock I recently recommended to my Crisis and Opportunity readers was up 12% today alone.
As the U.S. government shuts down and the Dow falls, you don’t want to miss out on the stealth bull market gaining traction in China.
All the best,
Christian DeHaemer
Check us out on YouTube!Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.
