What China-Japan APEC Talks Could Mean for Investors

By: DailyGainsLetter

The annual Asia-Pacific Economic Cooperation (APEC) summit started on Monday in Beijing, and I bet there will be a lot of discussion on the state of China and Asia in the global economy.

My readers all know the impact of China on the global economy, as I’ve written on its relevance before. If China fails, so will the global economy, including the United States and the fragile eurozone. Russia is already looking to extend its economic ties beyond the Great Wall.

Yet it’s clear the country that gave us spectacular double-digit gross domestic product (GDP) growth for years is now struggling. The Chinese economy has already seen its growth slow, coming in at 7.3% in the third quarter, the slowest pace since 2008. And it isnow threatening to fall short of the 7.5% target set by the government. At this point, it doesn’t look like the target will be met. In fact, there are whispers that the target could be cut to seven percent in 2015 if the global economy doesn’t experience a stronger recovery.

Pundits and China bears have been calling for the great collapse of China, specifically in the real estate and financial spaces. Yes, there is softness here, but we have yet to see a bigger crack form. You can bet the Chinese government will do whatever is necessary to reinforce its economy’s weak points. And China can definitely do this, given the fact that the country has about $3.0 trillion in reserves.

President Xi Jinping, who is in his second year of his 10-year term, knows the country needs to spread its wings globally. That is why China invests so heavily in Africa and South America, which will help to lessen its dependence on Europe and the U.S. through diversification.

Jinping is aiming to reformat the country’s economy from an investment-driven model to a model more akin to America’s, with consumer spending driving the economic growth. When you have 1.1 billion people and a middle class that’s larger than the U.S. population, the strategy makes a whole lot of sense. However, it will take some time to achieve.

The immediate concern for China will be to look for opportunities around the world. It is looking to extend its bilateral trade with Russia; and Russia is returning the sentiment, as President Putin looks to replace businesses lost via the economic sanctions placed on the country by the U.S. and Europe.

China is also looking to gain greater access to the one billion people who live in the neighboring country of India. There are some tensions between the two countries, but in the end, money rules.

The same goes for Japan, which is the third-biggest trading partner to China. The situation between the second- and third-largest economies in the world has been tense over the past two years since Japanese Prime Minister Shinzo Abe came to power. The two embattled leaders agreed to participate in formal talks at the APEC meeting in hopes of easing the tension.

Japan counts China as its biggest trading partner and Abe realizes that, given the stalling Japan is also experiencing, he needs to improve the country’s economic and political ties with Beijing. The reality is that China and Japan would make for an extremely powerful alliance.

On the investment side, while China is struggling, you have to think longer-term and understand that the country and region will be the most explosive in the future. As such, you could consider slowly adding exchange-traded funds (ETFs) that are a play on the two economies, such as iShares China Large-Cap (NYSEArca/FXI) or iShares MSCI Japan (NYSEArca/EWJ).

This article http://www.dailygainsletter.com/economy/china-japan-apec-talks-could-mean-for-investors/3493/ was originally published at Daily Gains Letter

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