Friday, November 05, 2010

Notes From the Ground in China, Part V

By Eric Jackson
RealMoney Contributor

11/4/2010 5:34 PM EDT
Click here for more stories by Eric Jackson

Please visit our archives to see the previous installments of this series: Part I, Part II, Part III and Part IV.

I've just returned from a two-and-a-half-week trip to China, which I've been writing about in my recent articles for TheStreet and RealMoney.

I've been trying to respond to the most common criticisms and concerns I hear U.S. investors raise about China's growth. I find that the U.S. media also tend to repeat these concerns in their articles on the subject.

Yet one gets a much different perspective when touring around China firsthand and, more importantly, talking to the entrepreneurs, bankers and other investors in China who are working on the front lines.

It would be nice if the U.S. media were able to send some journalists to do their own sniffing around, but we live in an age when media companies have cut investigative journalism budgets to the bone, if not entirely. Many financial blogs value speed over analysis. Repeating others' "news" about China is more important than trying to do original analysis that requires more time, money and homework.

But that's the way it is. In the meantime, let me provide some additional thoughts on China that are based on my own experience.

  • Myth: What about all the ghost towns I keep hearing about, like Ordos?

We hear a lot about the Chinese ghost towns, including Ordos, which is located in Inner Mongolia (between Beijing and Mongolia), by reputable newspapers like The New York Times. The typical U.S. narrative is that these towns are built solely on stimulus renminbi and loans pumped into the economy in 2009 especially, without demand to support them. Since these towns sit empty, Western journalists assume that it is just a matter of time before a property bubble -- akin to what we experienced in Florida, Nevada, or Arizona recently -- busts.

Regarding Ordos, what is different about this "ghost town" relative to others in China is that although there is currently a lot of excess capacity in the town, it is surrounded by coal resources and supported by deep-pocketed entrepreneurs who are tied to this resource. If you assume the prices of coal will remain strong, along with the Chinese economy, there is every reason to assume that this area will continue to prosper and that the town of Ordos will benefit from this.

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