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The China Story

The little stories fill in the blanks behind the government-sanctioned news.

When you spend hours every day reading about a phenomenon as big as China, you begin to build up a picture of the stories behind the headlines. And it’s these little stories that help to fill in the blanks behind all the government-sanctioned news stories and official press releases.

One example is the “white guy in a tie” stories I’ve read in the last couple of months. These stories are about a practice by some Chinese companies (I wouldn’t even venture a guess as to how common it might be) of hiring a Westerner with a good suit to give the impression that foreign talent is on board.

Sometimes there’s a speech to give on the Chinese company’s behalf, but mostly the hired suit just hangs around and does some handshaking. According to one article, this kind of gig is good for $1,000 a week plus some high level wining and dining.

So why would a Chinese company waste money hiring a useless supernumerary? Well, appearances (usually called “face” in Chinese contexts) are important, and businesses know that visitors and investors see the inclusion of a Westerner as a sign of legitimacy.

Another story that has made an impression on me is the Chinese suicide rate. The government is reluctant to release official statistics, but the wave of more than a dozen suicides at the Foxconn electronics factory in Kunshan in 2010 made the information impossible to conceal. Foxconn is the source of Apple’s iPhone, iPad and a ton of other computers and TVs, and generates $40 billion in annual revenues.

Some observers speculated that the factory’s military-style discipline might have played a part in the suicide outbreak, but an investigation found no wrongdoing.

In a similar vein, the suicide rate among China’s elderly (aged 70 to 74) was reported by the official Xinhua news agency as soaring from a little over 13 per 100,000 in the 1990s to nearly 34 per 100,000 in 2002-2008. The article cited rising medical costs and relocations from redeveloped city neighborhoods as contributing factors.

I’m not just interested in finding evidence that things in China aren’t all peaches and cream. Everyone who’s paying attention to this rapidly changing country knows that.

But a story that’s all negative is as false as one that’s all positive.

So I also note from a recent news story that the U.S. Consumer Product Safety Commission will be opening an office in Beijing to help communicate with Chinese manufacturers, with an eye to reducing recalls of defective or dangerous products.

This is the kind of quiet cooperation that benefits everyone, including U.S. consumers and Chinese manufacturers and officials. It only takes a few high-profile recalls like the corrosive Chinese drywall or lead-painted toys to wreck consumer confidence, and having the C.P.S. on the ground should help all concerned.

Another hopeful story is the news that China will be allowing its currency, the yuan, to trade in the U.S. for the first time. This follows last year’s move to allow the yuan to trade in Hong Kong, and is a second step toward allowing the yuan (or renminbi, as it’s officially known) to take its place as an international currency.

This move will go a long way toward mollifying U.S. critics who see China’s rigid support of a low value for the yuan as an unfair business practice.

Good news. Bad news. It all goes to make up a fuller picture of the enormous complexity of the Chinese story.

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If you live on the East Coast, you may have spent some time in recent weeks removing snow from your front walk, driveway, sidewalk, etc.

So how do you feel about it?

Resigned? Angry? Invigorated? Resentful? Peaceful?

I feel peaceful, and if you’d like to enjoy the same feeling, I offer these tips.

Start shoveling early, before the snow gets deep. Don’t wait until the snow has stopped falling to begin. The longer you wait, the more daunting the job will appear. So start early, even when there’s just an inch or two on the ground.

Shovel often, to keep the job ahead looking manageable. In the post-Christmas blizzard, I shoveled just before going to bed, when the snow was perhaps 3" deep, and when I woke up around 5, I had a quick nourishing breakfast and went right back to it, enjoying the solitude of shoveling before dawn, when the world is quiet. In this week’s blizzard, I was out there at 5:40 on both mornings.

Adopt a positive attitude, even when the plow drives by and piles up more snow. Remember that exercise is a good thing. So consider the shoveling your workout for the day. Find a pace that elevates your heart rate, but not to excess, and then enjoy the workout.

Take comfort in the fact that your simple shovel will never let you down. It won’t need gasoline, oil, a tune-up or a new starter cord. And it will never chop your fingers off. In fact, a shovel is safe to use even after you’ve been drinking.

Find the joy in the experience. In the pre-dawn morning, I often shovel in quiet. Later in the day, I like to enjoy music through earphones ... useful for tuning out the roar of neighbors’ snowblowers. But I often finish the job before those snowblowers even get started!

Finally, take satisfaction in a job well done.


For my stock pick this week, I’m going to discuss AmBev (ABV), which I recommended in my Cabot China & Emerging Markets Report a month ago.

AmBev, also known as the Companhia de Bebidas das Americas, is a Brazilian beverage company with a lineup that includes beers like Brahma, Skol and Antarctica as well as drinks like Gatorade, Lipton and Pepsi-Cola.

While Brazilian beer sales contribute more than half of the company’s revenues (52% in 2009), AmBev has operations in 14 countries, and gets a sizable chunk of sales in Canada (17% in 2009) from its ownership of Labatt Brewing, which it bought in 2004. Beer sales in the rest of Latin America amounted to about 20% of 2009 sales, while non-alcoholic beverages kicked in about 11%.

While the Great Recession in 2008 took a toll on AmBev’s earnings and revenue growth, the company was always solidly profitable. The last four quarters of earnings growth have included gains of 36% (in Q4 2009), 61%, 19% and 53%. Revenue growth for the period has come in at 41%, 40%, 16% and 15%. And the company’s Q3 report showed a record after-tax profit margin of 30.4%.

ABV, which recently split 5-for-1, has good support in the 28 area. And a dividend (annual dividend yield of 2.0%), ties up the package nicely.

You could buy ABV here and hope for the best, or you could read Paul’s latest thinking on the stock and others in Cabot China & Emerging Markets Report.


Paul Goodwin
For Cabot Wealth Advisory

Paul Goodwin is a news writer for Cabot’s free e-newsletter, Wall Street’s Best Daily.