An Investor's Guide to China: Geography
This is the first in a series of posts to get you up to speed on China in advance of our Global Gains research trip to the country in early July. As always, we’ll be emailing back real-time dispatches from the field on what we find for free to anyone who signs up to receive them.
If you’d like to sign up to join us on this year’s trip, simply click here and provide your email address on this page. Now onto the post…
Geography and China
One of the most important things to understand about a country before you invest in it is its geography. For example, you want to know where it’s located, what natural resources it has, how those things affect the economy, and how the geography affects the politics of a country. These four things are particularly important when it comes to China.
As you can see, China is an enormous country. And though it’s roughly the same size as the United States in terms of landmass, it has more than 4x the population (1.3 billion v. 300 million). Further, most of China’s population is concentrated in the east around Beijing, Shanghai, and Guangzhou. That’s because these areas have seen more economic development than the rest of China, generally have friendlier climates, and have access to water and to the coasts.
This geography currently affects government policy in that the government is pushing a go-west initiative to even out development in China and raise rural incomes. It’s doing this because it wants to diversify the economy (the country can’t keep growing on low-wage manufacturing jobs in southeastern China), strengthen the agricultural sector to become food independent, and spread the “Chinese miracle” so that impoverished peasants don’t start organizing to revolt. This western development is an important investment theme in China and one that will produce a lot of winners.
Another way Chinese geography affects politics and investment is in the Taiwan question. While I won’t go into the history here, Taiwan is a disputed province. Many Chinese would like it to be part of the PRC, while many Taiwanese would like to remain independent. If Taiwan were ever to return to the PRC, it would likely be as an SAR (like Hong Kong or Macau). Thus, the PRC continues to encourage development in HK and Macau in the hopes of proving to Taiwan that being an SAR wouldn’t be such a bad deal.
The 10,000,000 foot view
Now, take a look at this map:
This one really shows why China has and continues to make such a massive investment in infrastructure. If it is to expand west, it needs many more roads and rails to make sure that part of the country can ship goods out to the east. Because unlike the US, China has just one coast (it also makes you wonder if China at some point is going to try to blast through the Himalayas to get more direct access to the fast-growing Indian market).
You can also easily see in that photo why most of the Chinese population lives in the east. As you can see, northern and western China is extremely dry. In fact, that part of the country is running out of water. This has caused China to pursue a massive north-south pipeline project, which has been another major infrastructure investment.
That last point also brings up the question of resources. Yes, China needs water, but it also needs oil, metals, and food. You can clearly see that China does not have much arable land relative to the size of its country and that much of that arable land (in the south and east) has already been developed for cities and manufacturing. One imagines that if China had to do it over again farther north where it could be both near the desert and near the coast and save that prime farmland in southeastern China for productive farms.
That’s just a primer on the geography of China, but it should give you an idea of how China’s geography will affect its development over the next 10 years. Indeed, knowing that, you may now share our view at Global Gains that some of the best opportunities in China are in western China and in the infrastructure space.
Again, if you’d like to join us as we explore that thesis on the ground in China in July, simply click here and enter your email address. Then we’ll be able to send you all of our free real-time dispatches from the road.