FXI (China 25 Index)

[JeffBox]

I'm thinking about putting some money in this index as a long term investment (3-5 years).

Motley Fool has an article about it:

The Wrong Way to Invest in China

I think the reader comments at the end of the article were particularly interesting. What do you guys think?

[Airelon]

I don't know mate. I always like to invest in what I 'know' - you know? And I'd like to think that I've investigated China pretty deeply. I've studied it's history for the last 120 years, and specifically I try to focus in on the culture. What the people are actually 'like'.

For my own business - China is just one of those areas I'm not ready to jump into yet. I'm not averse to ADR's and the like. But man, that's a country that can change and turn it's fortunes on a dime. Who knows. Perhaps in the future. But not right now.

But one of the comments did jump out at me:

"Obviously this author has no idea of how "business" is done in China. The government is the biggest, monopolistic "capitalist" in the country, which in turn makes the shares of those big government-owned firms more attractive."

Now this is someone who understands China. China, in it's entire history (4,000 year history) has been about one thing.

The money. And bending whatever they have to, fortune and fate - to get more money. China gave up on that communistic garbage a long time ago. Now? They're some sort of weird mensheviek like government. It's almost as if the government themselves act like the Emperor used to - but as far as free markets - it's back to business.

And China has always been about business.

[Ray The Money Man]

I agree, you have to be careful. But you have to be in China. Even if is only 1-3% of your fund. We have been adding to our FXI position lately.

Another way we play China is through RIO. You get your China play and your Brazilian position in one stock. And it is on sale right now!

[rachael24]

Hmm that RIO seems like a good choice right now...Thanks for sharing!

[Fredledingue]

Chinese can be tremendous businessmen and make a lot of money in a heartbeat but as a nation, economicly they suck. The only successful businesses in China have been those managed by westerners.

Their products are of very bad quality and when manufacturing costs through higher salaries, finaly rise, they will sink.
And if salaries don't rise, their economy will stay a third world economy.
It's a lose/lose situation.

Also chinese stocks are subjects to extreme speculations as chinese try to make money out of everything.

Extremely dangerous in the mid/short term and not attractive in the long term.

I would trust much more Latino America, or even Russia, Central Asia or even more daring India.

Originally Posted by Airelon

I've studied it's history for the last 120 years,

Geez! How old are you, man?

[Novice Investing]

Their products are of very bad quality and when manufacturing costs through higher salaries, finaly rise, they will sink.
And if salaries don't rise, their economy will stay a third world economy.
It's a lose/lose situation.

Fredledingue:

This depends on whether the Chinese merely depend on western capital inflow or not. If so, then yes, China will not have any value added economy other than their cheap salaries. Once, their salaries rise up on par with the rest of the developing world, China will lose its edge.

However, from what I have heard, they have started developing their own business based on the western investments in the country. Such as car, other simpler machineries. Yes, their quality is left to be desired. But that same thing happened with the Japanese, Taiwanese, Koreans many years ago. Japanese, we all know how the Hondas and Toyotas kick the heck out of their American counterparts. Taiwanese is now home of the biggest supplier of semiconductor, Taiwan Semi Conductor (TSM) among others. Also, Acer of Taiwan has recently bought Gateway, an American company. Koreans, yes, their car has not been accepted internationally as the equal of the Japanese or Americans. But this decade, you have seen the emergence of Samsung and LG taking over the high-end side of the business.

Chinese, let's see. They are not that aggressive in the high tech sector. A couple notable ones was the purchase of 3Com by HuaWei, a router competitor of Cisco and Haier's attempting to purchase Maytag. They are still of lower quality, but hey, the Chinese don't only make socks and underwears. Soon, they will be able to make high quality routers and washing machines.

[Fredledingue]

Yes but China is not Korea or Japan.
Their low quality standard is an inheritage from Mao Tse Tung era when production had to be on highest volume as humanly possible.
That was a strenght until now since they could first meet their domestic demand and then, with little bit more capitalism, export and eventualy flood markets worldwide.
But their "bad quality" has become proverbial and their reputation is realy very bad. I think worse than that of the Japanese and Korean a while back.
Even if they produce good quality things (which is still to be seen), their bad reputation will follow them.
IMO, it's because of that that they don't produce high tech stuffs.
Of course it can change and let's hope it change but then, we will talk again.
Next is their domestic market. Eastern Europe have been striving to grow their economy and mor importantly their buying power for 20 years with mitigated result. In one word, it takes longer than expected.
China is 1.3 billion poeple, about five or six times the population of eastern europe (w/o Russia, Ukriane etc). It will take much longer to develop this region as low salaries source is practicaly unlimited.
Finaly you have to be extremely cautious with a country like China because no one realy know what their companies are worth. If we can have accounting scandals in the US, well you won't have them in China because there is no accounting.
Maybe I'm exagerating, but who is controling chinese companies? Ask yourself this question before puting money there.
Because of that I think that Chinese stock markets are going to be extremely volatile.

[Novice Investing]

Hi, Fredledingue:

I wouldn't touch Chinese stocks for the same reason you point out. Agree that they are basically government controlled and accounting practice is still pretty shady. Until things change, we have to stay put and see how they develop.