Forget Commodities… This Is the Next Big Trend in China

In 2006, the Chinese government created a master plan for its economy.

It would invest billions of dollars in construction. New skyscrapers would be built. Schools and apartments would follow. The country’s transportation network would also get a massive upgrade…

Highways and rails were laid down. The government provided incentives for several sectors including oil, coal, and electricity. It also opened up the economy to foreign investors.

These measures were taken to improve economic growth. And despite what many China skeptics say, the plan was a huge success.

Property prices surged. The country’s middle class nearly tripled in five years. It leapfrogged Germany to become the world’s largest exporter. And just last year, China leapfrogged Japan to become the second-biggest economy in the world.

Owning vital infrastructure commodities – and stock in the companies that produce them – was the right way to play this building boom. Copper, iron ore, and oil stocks all skyrocketed. These investments will likely continue to do well.

But there’s a new, bigger trend on its way…

China’s master plan was not a one-time event. You see, every five years the government allocates money to specific growth sectors that will help create jobs and increase economic development. China’s five-year plans date back to the 1950s. Some were disasters, but there were successes, too…

From 1996 to 2000, the government’s plan was to increase its electronic manufacturing base for products like televisions and computers. China dominates this area now. From 2001 to 2005, the government focused on building up second- and third-tier cities… the cities you never hear about in the news. This has also been a success.

In three weeks, you will get another opportunity to invest alongside China’s government. China will release the details of its next five-year plan. In my eyes, the big opportunity is in technology…

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According to the early drafts, China’s government is about to spend nearly $600 billion over the next five years on emerging industries like new energy and biology. The government also listed information technology as one of the sectors that will receive financial incentives.

This is no surprise to me. Information technology is in its infancy in China. Only 31% of people are currently using the Internet. Over 800 million Chinese own mobile phones. But according to China’s government, fewer than 300 million use them to surf the Internet.

These statistics point to enormous growth in information technology. Over the next few years, mobile phone users will upgrade to 3G – which will provide faster Internet speeds. I also expect many of these users to buy tablets.

Tablets are lightweight handheld computers. They can be used for playing games, listening to music, and surfing the Internet. They are flying off the shelves in the U.S. In a few years, the price of a tablet could drop below $100 – making it affordable for most of the middle class in China. This means a big tailwind for bandwidth providers, semiconductor makers, and software vendors.

Investing in the information technology trend in China is a no-brainer. China is about to put huge amounts of cash into this sector. Plus, every large-cap technology company is going great guns to penetrate this massive market.

For the conservative investor, I’d simply own larger, more established “tech infrastructure” names like Intel or Cisco. For the investor looking to make bigger winners here, I’d focus on knowing exactly what devices the Chinese want to buy… and invest in the companies that sell the components.

–Frank Curzio

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Source: DailyWealth