If you had been a smart, savvy investor alive in the 1880’s you would have seen that the United States was becoming the industrial powerhouse of the world.  You would have noticed that the Americans were designing factories that could produce everything from steel to textiles, for less cost than competitors in Europe.  You would have recognized that the settlement of the American West was creating new markets.  You would have seen millions of immigrants and understood that any country capable of drawing much new labor was capable of generating that much more output.

So why didn’t more people leap at the opportunities?

Some did, of course.  The United States was attracting more foreign direct investment than any country in the world.  But many people shied away.  Why?  Because the United States looked like a dangerous, lawless place where contracts didn’t mean much more than the paper they were written on, where speculations were rampant, where devastating economic crashes were frequent and violent labor strikes were common.

 Opportunities Do not always Look Like Opportunities

You could have done quite well by investing in the United States in the late 19^th century.  Today, the same thing might be said about China.

After the United States, China is the most dynamic force in the world economy.  In 2003 and 2004, it is estimated that these two countries will account for more than 50% of the world’s economic growth.  While the United States is a far bigger economy, China is growing more rapidly.

 But many investors are deterred today, just as their great-grandfathers were by the uncertain conditions of the U.S. economy in the late 19^th century. 

 

 Good Investors Follow Good Opportunities

Great Investors Discover New Ones

 

The Chinese economy is growing 8% a year, and even faster in the coastal regions.  New factories are being built to service the domestic market and to product goods for sale throughout the world.  The economic expansion of places like Shanghai, a city of more than 10 million people, is in the double-digits, and the appetite for cars, cell phones, appliances and services increases daily.

China still poses challenges to investors.  Its markets are restricted, its currency doesn’t float and its government has only recently begun to honor the contracts and intellectual property rights that are the essentials of modern business.  But history has proven that focusing on obstacles can mean missed opportunities.

 Of course, you have to make the right choices.  In 19^th century America, most railroad companies went bankrupt, but some steel companies did quite well.  Most banks issued bad loans, but a few great ones grew exponentially, and survive till this day.  China offers opportunities, but not all of these are obvious. 

The Bull.  The Bear.  And not the Dragon

We believe that just as the United States became an industrial powerhouse in the 1890s, just as new technologies fueled growth across industries and across continents in the 1990s, the emergence of China today is transforming the world economy.  There will be many winners, and innovative American Companies doing business with China stand to benefit enormously.