Three Sweeping Events in China

JUPITER, Fla. (PRWeb) March 21, 2007 -- "China has jumped ahead with three sweeping reforms to solidify its growth, bolster its financial markets, and more rapidly transform itself into a 21st century market economy. Whether or not these reforms bring more political freedom to China remains to be seen. But they're likely to set off a chain reaction of further legal changes, and ultimately, an end to nearly all vestiges of communism in China's economy," says Martin Weiss, Ph.D.

Reform #1: Chinese national legislature passes new property law

This is a law that has been hotly debated for fourteen years, vehemently opposed by old-guard leftists in the highest echelons of power, and repeatedly voted down by those who wanted to retain the government's wanton legal rights over private property. But China is an increasingly prosperous society. And in this society, personal wealth must have legal protection. The country's economic and social changes make the law absolutely necessary. This reform could unleash the entrepreneurial spirit of hundreds of millions of Chinese citizens that, until now, have been held back or left out!

Reform #2: New phase in the development of China's financial markets

For the first time, China will now allow trading in stock index futures and options. China already had three futures exchanges -- in Shanghai, Dalian and Zhengzhou -- but they were exclusively for commodities like copper, aluminum, rubber, fuel oil, soybeans, corn, and sugar. Last September, China set up its China Financial Futures Exchange in Shanghai. And now, on April 15, the new rules on stock index futures and options go into effect. It could add another good measure of confidence and stability for both domestic and foreign investors.

Reform #3: The largest investment fund of all time

China has just created what could soon be the largest investment fund in history. Finance Minister Jin Renqing made the fund's goal absolutely clear: To tap into China's $1.1 trillion in foreign reserves, to invest a big chunk of that money in stocks, and to create a massive, unprecedented new wave of investment.

• Economists expect the Chinese government to allocate $200 billion to $400 billion to the new fund.
• The largest mutual fund in the U.S., the Magellan Fund, has "only" $50 billion or so on assets. The new Chinese fund would be four to eight times larger than anything in the U.S. financial markets.
• China's Finance Minister said Beijing is following the lead of Singapore's Temasek Holdings, which has poured billions into Singapore Airlines and Singapore Telecom; has invested heavily in banks, shipping and real estate; and has pumped more billions into Asian economic giants like China, India and South Korea.
• The stocks and stock markets that Temasek has touched have risen substantially, sometimes by a factor of up to 12-to-1. But even with its massive $90 billion in assets, Temasek is small by comparison to the $200-$400 billion expected in the Chinese government fund.

Meanwhile, back in the U.S., the Commerce Department has announced our worst trade deficit in history for the fifth year in a row:

• The red ink in the current account (the broadest measure of trade) was $856.7 billion in 2006.
• That means that every single day of the year, holidays included, $2.3 billion is being drained from the United States and winding up in the coffers of foreign corporations, foreign investors and foreign central banks, especially China's.
• The deficit is now at a record 6.5 percent of the total economy, a continuing -- and worsening -- drain on U.S. growth and U.S. corporate earnings.
• Even investment inflows -- which had been positive in every single year since the great crash of 1929 -- have turned negative. Instead of investment money flowing into America to the tune of $11.3 billion in 2005, now it's flowing out, with $7.3 billion leaving last year alone. This puts the U.S. dollar in even greater jeopardy.

"Despite bumps along the way, expect a continuation of the megatrends that propelled China's 11 percent growth last year, that drove Shanghai's stock index up by over 130% in 12 short months, and that are continuing to spread their impact worldwide," advises Dr. Weiss.

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http://www.moneyandmarkets.com/press.asp?rls_id=711&cat_id=6&


About DR. MARTIN WEISS & MONEY AND MARKETS
Money and Markets (www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit www.moneyandmarkets.com.

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