On China’s Growth; A Break-out in Japan?; Plant-based Diet and Cancer!

From: aditya rana
Date: Sat, Mar 14, 2015 at 1:54 PM
Subject: On China’s Growth; A Break-out in Japan?; Plant-based Diet and Cancer!

Hi!,

The slowdown in China’s growth rate continues to attract headlines in global media, and forecasts of a looming debt-driven economic crisis abound, while expectations of robust growth in the U.S are increasingly widespread. However, looking closer at the facts presents a different picture, as the economist and China expert John Ross points out in a recent note. To summarise:

-China’s economy grew by 7.4% in 2014, three times faster than the growth of the U.S. economy of 2.4%. At market exchange rates, China added $780 Billion to GDP while the U.S. added $563, or approximately $130 billion more than the U.S..

-This outperformance is even larger if measured at the World Bank Purchasing Parity (PPP) rates. China added $1,300 billion to GDP versus $653 by the U.S.. The above factual data is in striking contrast to what is typically portrayed by the global financial media – that of a “financial crisis” or a “severe slowdown” in China and “rapid growth” in the U.S..

-Some examples of recent such stories: "China’s debt-fuelled boom is in danger of turning to bust" (FT Jan, 14), "China’s crisis is coming – the only question is how big it will be" (April , ’14), "An economic mess in China" (American Enterprise Institute), "A Chinese Soft-Landing Will Inevitably Lead To A Very Brutal Hard Landing,” (Michael Pettis in Zero Hedge), “Chinese economy expected to slow-down to a 3.9 growth rate” (George Magnus, former UBS economist in a series of articles in the FT).

-The above is a continuation of a decades-long genre of predicting a coming “crisis” in China in the Western media. For example, in ‘02 Gordon Chang wrote a book entitled "The Coming Collapse of China," arguing – "A half-decade ago the leaders of the People’s Republic had real choices. Today they do not. They have no exit. They have run out of time." Over a decade later, since time has not yet run out, but Chang continues to be featured by Forbes and Bloomberg TV as a "China expert."

– Another example from The Economist (June ’02) which featured a special report "A Dragon out of Puff." This report argued, "The economy still relies primarily on domestic engines of growth, which are sputtering. Growth over the last five years has relied heavily on massive government spending. As a result, the government’s debt is rising fast. Coupled with the banks’ bad loans and the state’s huge pension liabilities, this is a financial crisis in the making. In the coming decade, therefore, China seems set to become more unstable." In reality, far from entering a crisis, China was about to enter the decade of the fastest growth ever experienced by a major economy in recorded history.

-This discrepancy between on the ground reality and views in sections of the global media continues despite China consistently outperforming its own ambitious economic projections. The graph below illustrates compares the Deng Xiaoping’s projections for China’s economic growth shortly after the start of the reform process with China’s actual economic growth.

– Deng Xiaoping’s first stated target was to increase the size of China’s economy by 400 percent between 1981 and 2000; the actual increase was 623 percent. The second goal was to increase China’s GDP by a further 400 percent between 2000 and 2050, or a 1,600 percent increase between 1981 and 2050. In reality, China’s economy had already grown by over 2,200 percent compared to 1981 by 2014. Deng Xiaoping’s target was reached 38 years ahead of schedule!

-With regards to China’s latest stated goal – to double GDP between 2010 and 2020 – China is also ahead of its growth target. China continues to develop as per the key goals set by President Xi Jinping: "We have set the goal of completing the building of a moderately prosperous society in all respects by the centenary of the Communist Party of China in 2021 and building China into a modern socialist country… by the centenary of the People’s Republic of China in 2049."

– There continues to be a poor understanding in the West of the framework of "socialism with Chinese characteristics" within which Chinese economic policy is designed. One of China’s leading economists, Justin Yifu Lin (former Chief Economist of the World Bank), elaborates this principle and argues why China’s relatively high growth rate is likely to continue.

-Lin argues, "China has the potential to maintain robust growth by relying on domestic demand, and not only household consumption." Economically, in any country, domestic "demand" is not equal to consumption, but is equal to consumption plus investment.

– China has the world’s largest investment resources. As Lin noted, "China’s investment resources are abundant- private savings in China amount to nearly 50 percent of GDP. Even under comparatively unfavourable external conditions, China can rely on investment to create jobs in the short term; as the number of jobs grows, so will consumption."

– In a developing economy, investment accounts for 50 percent of economic growth on average, while in an advanced economy it accounts for 57 percent. It is therefore should be of no surprise that China’s much greater investment resources are leading its economy to continue to grow much faster than the U.S., where investment growth is lagging.

– But why is China able to successfully carry out such investment programs, whereas in the U.S. numerous calls for increased investment in areas like infrastructure have not been implemented?

-The reason lies in the fact that China is a "socialist market economy" not a "capitalist market economy." China possesses a state sector which does not aim to encompass the whole economy nor to administer it, but which is strong enough to set (and maintain, if required) China’s overall investment level. As the Wall Street Journal accurately summarized, "Most economies can pull two levers to bolster growth: fiscal and monetary. China has a third option. The National Development and Reform Commission can accelerate the flow of investment projects."

-In analyzing domestic China factors to forecast China’s growth rate-, Lin noted, "In 2008, China’s per capita income was just over one-fifth that of the United States. This gap is roughly equal to the gap between the U.S. and Japan in 1951, after which Japan grew at an average annual rate of 9.2 percent for the next 20 years, or between the U.S. and South Korea in 1977, after which South Korea grew at 7.6 percent per year for two decades. Singapore in 1967 and Taiwan in 1975 had similar gaps – followed by similar growth rates. By extension, in the 20 years after 2008, China should have a potential growth rate of roughly 8 percent."

– However, regarding shorter term projections Lin argued, "The external scenario, however, is gloomier. As a result, Chinese growth is likely to fall below its potential of 8 percent a year. As policymakers plan for the next five years, they should set China’s growth targets at 7-7.5 percent, adjusting them within that range as changes in the international climate dictate. Such a growth target can achieve the country’s goal of doubling income by 2020." A 7 percent annual growth rate from 2015 would result in China exceeding its target of doubling the size of its economy from 2010 to 2020.

– Another fact casts further light on the situation. While sections of the media were running inaccurate stories on China’s economy, foreign companies increased their investment in China from $123.9 billion in 2013 to $127.6 billion in 2014. As is usually the case, companies were more in step with economic reality than sections of the press.

Very helpful piece of analysis which puts China’s growth rate in the context of the actual size of the economy. It is very likely that China will average a 7% growth rate until the end of this decade and meet its stated goal of doubling the size of the economy by then. Regarding its debt overhang issue, last week China made an important first step in dealing with the debt problem by allowing local governments to swap high interest debt for low cost bonds for a first tranche of 1 trillion yuan ($160 BN). Expect more measures to come on the debt resolution front.

-Regarding ways to get exposure to Chinese domestic stocks, after a 52% rally in 2014, the ASHR ETF (listed on the NYSE and LSE) which tracks the CSI-300 index (the 300 largest and most liquid stocks traded in Shanghai and Shenzen) is down 1.5% YTD, while the ASHS ETF which tracks the CSI-500 index (the smallest and most liquid shares traded in Shanghai and Shenzen) is up 18.3% YTD. In addition, the CNXT ETF which tracks the ChiNext Index (the 100 largest and most liquid small and mid-cap stocks on the Enterprise Board) is up 28.7% YTD. Typically, the more speculative end of the spectrum (ChiNext) in China leads a broader market rally which was the case last year – when CNXT and ASHS outperformed ASHR until the rate cut in November, triggering subsequent outperformance by ASHR. We can therefore expect the broader market to continue its outperformance after a period of digesting its gains from last year, aided by stimulative government policies.

-Continue to stay long China, India, selective other EM stock markets (Russia, Brazil), Europe (currency hedged ETF HEDJ ), Japan (currency hedged ETF DXJ) and a relatively lower U.S. allocation. Regarding Japa for the technical buffs) as Mark Galasiewski of EWI points out (see chart below) last week marked an important milestone with the broad-market TOPIX index breaking 4% above the upper line of the trend channel that has mostly contained its decline since the 1989 high, potentially signalling the start of a longer term bull market.

On a Plant-based Diet and Cancer:

Noted nutritionist and a leading advocate of the critical role of plant food diets in preventing a variety of chronic diseases , Dr. John McDougall writes in his latest newsletter about the role of a plant based diet in preventing/slowing the progress of cancer (research links are underlined):

-On February 13, 2015, the American Cancer Society published their recommendations that cancer survivors should follow "prudent diets," plant-based diets that are high in fruits, vegetables and unrefined grains while at the same time being low in red and processed meats, refined grains, and sugars. Its report states, "These diets are contrasted to ‘Western’ diets,’ which have the opposite pattern and are heavy in meats, sweets, other processed foods, and dietary fat." They also recommend weight loss and exercise in order to prolong survival for people with cancer.

-This turn in thinking about the importance of food is especially important because the latest statistics (2015) from the American Cancer Society show little improvement in survival rates over the past 40 years for cancer patients; regardless of the good intentions of their practitioners, aggressively attacking their tumors with surgery, radiation, and/or chemotherapy. (Improvements from standard medical treatments have been limited mostly to childhood, blood, and lymphoid cancers, representing fewer than 10% of all cancers.)

-A low-fat, plant-based diet has been shown to positively affect survival in cancers of the Breast, Colon, Prostate and Skin (Melanoma). This research has been based on diets that are still too high in fat (30% or higher), loaded with animal foods, and deficient in plant-derived foods (especially starches). A truly low-fat, starch-based diet like the one once followed in Japan (rice and vegetables with fewer than 10% of the calories as fat) would provide far greater benefits for prevention and survival than the "Mediterranean-type" diets that have been recommended lately. Meaningful research in the future should use the best treatments available rather than compromise the patients’ health with "prudent diets."

-People treated with a low-fat, starch-based diet become healthier, and one sign of this better health is they become trim. Unfortunately, physicians misinterpret the meaning of this weight loss as a sign of sickness because of their past experiences which have taught them that "slim" means the end of life; because their patients lose their appetites and become malnourished with illness and treatments. Patients must not let themselves suffer from their doctors’ biases and ignorance. (i.e. "You can go on a vegetarian diet, just don’t lose weight.")

-I often see women with breast cancer, men with prostate cancer, and both genders with many other forms of late-stage cancers. Their doctors have given them no hope; in fact, in most cases, well-intentioned medical treatments (surgery, radiation, and chemotherapy) have added to their miseries. Hopelessness compounds the suffering. Patients need to be told that even with advanced cancer, there is sometimes recovery, called "spontaneous regression." Spontaneous regression of cancer is not as rare an occurrence as once thought. In a study based on mammograms, 22% of the invasive breast cancers in women spontaneously regressed over a six-year interval (with no treatment).

-People with a body full of disease have also recovered. One recent report identified 32 cases of spontaneous regression of clinical breast cancer. There are certainly many more unreported cases. Advanced melanoma, brain cancer (neuroblastoma), and kidney cancer are also known to disappear without treatment. Precancerous changes in the female uterine cervix and colon polyps also regress naturally.

-Simple logic would lead to the conclusion that "such a miracle" is more likely to happen for someone in good health, rather than in poor health. The only way I know to consistently improve health is by replacing destructive habits with supportive ones. The most powerful of these necessary changes is the kind of food (not the quantity).

-I have seen what I believe to be spontaneous regressions in my patients. Ruth Heidrich is one remarkable example of metastatic breast cancer, spread to the bones and lungs, diagnosed over 33 years ago, and she lives cancer-free today.

-Never give up! It’s the food.

I will be travelling next week so the newsletters will recommence on March 28!

Here’s to staying long China and incorporating a higher (if not 100%!) intake of plant-based foods in your diet!

Regards,

Aditya

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