China Bull: The Ragging Han Bull “He who will not economize will have to agonize “Confucius
China the mighty Han Empire based on the philosophy of Spiritual leader Confucius has emerged over the last decade as a raging bull and has stormed into the world with its unique business model. China’s rise as the second largest economy in the world on the back of investments and consumption has been remarkable. China is not only the greatest trading power in the world but also one of the largest importers of commodities thus driving world economy. Initially driven by investments in infrastructure which might be considered as the 8th wonder of the world which includes highest railroad of high speed trains and the tallest skyscrapers has shown the world how decisive and pro reform policies can transform a country within a decade. China has recently shown a vibrant entrepreneurship spirit and this is the bellwether of a nation which is a superpower in terms of economy and the same has been seen in India. China is fast innovating in technology and is no longer relying on cheaper products to again competitive advantage. Xiaomi is one example. Today not only is Xiaomi the number 1 selling smart mobile phone in China and has redefined a fundamental industry through its unique distribution channel which helps it to market smart phones at unbelievably low prices with the best technology. The popularity of the product can be seen in India as it is sold within a few hours through online retailers Amazon and Flipkart. Alibaba does more business than Amazon and will one day be the most dominant e-commerce site in the world while Apple’s huge surplus of cash is due to outsourcing of all iphones assembly to China. China is fast innovating and has realised that it needs to change from being a low cost manufacture to create brands which known for quality and technology. Much of achievement is due to its people and to a large extent to Chinese government which has shown a collective will (especially in the last 20 years) to implement policies for betterment of people and liberalise with pro reform policies. In terms of economic parameters and infrastructure development, Chinese government has been outstanding over the last decade. But a sense of caution here, opening up too fast is also a risk and slow and steady always wins the race and should reform in a structured manner. China's recent efforts to make RMB convertible is commendable as well as its emphasis to boost consumption and services rather investment. Looking at the recent turmoil in the equity markets, it will be prudent for government to reduce number of trades by retail investors as retail investors constitute 80-85% of trades while the retail participation is only 13%. Increase in institutional investors as well as increasing FII participation would be better since they provide inflows into the economy by increasing consumption through profit booking.