By Mike Dunn | www.mutualfunddirectory.org | 4/30/2020
China’s situation: Good, Bad, or Just Different
Some of the Peoples Republic of China’s moves have been calculated, and some appear to reactionary but managed. Change is a constant. However, the actions of the PRC Government before, and during, this pandemic are directly causing change for countries, companies, and individuals.
China’s PRC vs. The World
At this point, most things that are good for China will be bad for the rest of the world. However, the opposite is also true. This environment is a cocktail for conflict. The result will most likely be tariffs, sanctions, law-suits, reparations, and military actions or threats of actions.
The Good Outcome for China
With thousands of companies going out of business and millions of companies having a valuation hit, China companies backed by the PRC government may go bargain hunting to buy strategic companies to control. So instead of stealing intellectual property, they may now just buy the company. Some governments have been blocking certain acquisitions for national security reasons.
China has been funding infrastructure around the world for the past few decades. When the countries can not make their debt payments, then the PRC renegotiates for better terms and political leverage.
The PRC PR Machine
More and more information is coming out about “The PRC PR machine.” This is a real thing and needs to be considered in your investment decision making. There is a “chilling” component to coverage for people covering the PRC and their issues. Determining facts from misinformation from all sides needs to factored into your interpretation of news media sources.
The Watchdog Organization
“that the Committee on Foreign Investment in the United States (CFIUS), which reviews acquisitions by foreign entities for potential national security risks, is becoming more risk-averse under US President Donald Trump., per Greg Roumeliotis, Diane Bartz with Reuters.
The World Wide Military Budget Situation
With the collapse of oil pricing, Russia has canceled or postponed orders for most of its new ships (new destroyers and frigates) and delayed manufacturing of their Sukhoi SU-57 fifth-generation fighter jet. However, they are continuing to spend money on their hypersonic missile program. The PLA (People’s Liberation Army) just delivered a new aircraft carrier this week.
However, if North American manufacturers start pulling out of China by some significant percentage, this will impact the PLA military spend. The US and Japanese budgets are quickly responding to increasing PLA threats.
The Bad Outcome for China
The supply chain risk analysis has significantly changed for the US, Canadian, and European companies since December of 2019. Between the unpredictability of the moves from the PRC government and the risk of a blockade by China’s military, companies rethinking their reliance on using China as a crucial part of their supply chain.
If companies start moving their manufacturing to other parts of the world, China will lose.
The companies are concerned about:
- the risk of extorsion or more tariffs by the PRC
- a blockade by the PRC that will stop or slow the supply chain
- tariffs or duties imposed on goods made in China by the US
- and the interruption of shipping due to military action in the pacific.
What Investors May Want to Consider About China
I foresee that the United States administration will start offering incentives for US companies starting plants and factories to manufacture more strategic goods in both the US or outside of China.
How Can Investors Benefit? | Place Your Bets
Change is opportunity. And currently, there is no shortage mind-numbing of change. For investors who can pick the winners in this situation will have a chance to make an excellent return. The easier way to find possible winners is seeing which economic segments get incentives. Moreover, determine which companies can take advantage of the supply chain changes. Again, place your bets!
The Polyanna Outcome for China and the World
The best case for the world economy is if companies can get back to creating products and services and selling them in the free market without having to worry about machiavellian bad actors trying to take over the world. Or if they do, James Bond will take them out. Will this ever happen? Me either.
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