This industrial hub is not only home to millions of residents — it’s also teeming with high-tech surveillance equipment. As part of a project that began a couple of years before the Beijing Olympic Games, the government installed about 200,000
surveillance cameras throughout the city, according to journalist Naomi Klein.

Right now, the Chinese government is in the midst of a massive security overhaul. When the dust clears, the sprawling city of Shenzhen will contain more than 2 million closed-circuit television cameras. That’s double the number of cameras lining the streets and shops of London.

Make no mistake about it — Big Brother is watching the Chinese every moment of every day.

Klein detailed the rise of the high-tech Chinese security state in Shenzhen in her pre-Olympics exposé in a 2008 edition of Rolling Stone:

“China today, epitomized by Shenzhen’s transition from mud to megacity in 30 years, represents a new way to organize society,” Klein writes. “Sometimes called ‘market Stalinism,’ it is a potent hybrid of the most powerful political tools of authoritarian communism — central planning, merciless repression, constant surveillance — harnessed to advance the goals of global capitalism.”

The surveillance industry in China is booming. It will be a $43 billion industry by next year, growing 20% annually for the next two years, according to the Chinese Security and Protection Agency. This robust growth won’t happen by itself. China’s ruling political party and big business will be supplying the cash to expand surveillance and security measures in every city and town in the country.

Whatever bumps or growing pains the Chinese economy will face over the next several years, it is all but certain that the current expansion of the security state will continue unabated. And one small company is emerging as a security and surveillance industry leader — nabbing lucrative government contracts left and right, all while buying out smaller competitors to fuel its growing business…

China’s Best Surveillance Play

In the latest issue of Penny Stock Fortunes, we let our readers in on a Shenzhen-based company that develops both surveillance equipment and software for the government and commercial sectors. The company provides surveillance networks, traffic monitoring, pollution detectors, alarms and an array of security devices and software.

Thanks in part to the Communist Party’s strict security demands, this company also has a history of winning large government security and electronic infrastructure contracts. These deals are so large in size and scope that just one or two wins could significantly impact its top line – and they already have one in the pipeline right now.

Thanks to aggressive government surveillance legislation, this company will have plenty of opportunities to grow its business in the coming months and years. More on this specific play in a bit…

Mandatory Government Programs Are Set to Boost the Security Industry

Life in China is not like life in the United States. The party wants to have it both ways: maintaining control over the population while growing its capitalistic enterprises. This grand compromise will be no easy task. It will take plenty of technology, security — and money.

With that in mind, the Chinese government has passed specific safety and surveillance ordinances. These laws mandate street surveillance for 660 cities, courts and entertainment locations. The projects themselves will be worth an estimated $25 billion over the next five–10 years. Our company also expects to earn additional contracts thanks to the government’s infrastructure and social welfare stimulus package.

Stocks That Will Continue to Shine

The Summer Olympic Games in Beijing was China’s coming-out party to the world. It gave the new industrial giant plenty of exposure — both positive and negative — no matter how hard the powers that be tried to control the message.

You see, China has everything to gain and a whole lot to lose. The country and those in power want to continue to see China grow and prosper into a top industrial nation. The risks of crime or uprisings would undermine these goals. That’s why security and surveillance remain important issues long after the final day of the Beijing Olympics…

With more than 15,000 companies out there servicing the Chinese security market, there’s no shortage of investment opportunities right now.

Sincerely,
Greg Guenthner

October 23, 2009

P.S.: For more details on this specific play, check out the Penny Stock Fortunes website…

Let China’s “Big Brother” Program Make You Rich was originally featured in the Penny Sleuth.

Unfortunately, today’s market isn’t presenting nearly as many of these opportunities as it used to. But we scoured the enormous — and growing — universe of penny stocks and found one with the potential of a blue chip.

Transition from “Developing” to “Developed”

“China” was the buzzword on Wall Street over the past few years. This recession is putting a damper on that, though. No one is jumping in on Chinese stocks quite the same as in 2006 and 2007. That fact alone has forced many of these stocks below their true value. But that alone is only a small fraction of the story.

You see, China is still a mega-growth story. It’s not going to churn out double-digit growth like it has been this year or next. But it’s still a major investment opportunity if you know where to look.

One of the most obvious places to find a solid investment is Chinese education. As any country transitions from “developing” to “developed,” its people inevitably transition from peasant to white-collar jobs. That means there will be a huge stream of students flooding colleges and trade schools.

There are plenty of easy ways to get in on this transition. New Oriental Education & Technology Group Inc. (NYSE: EDU) is probably the most obvious. While it has only a $2.4 billion market cap, it is still one of the largest publicly traded Chinese education plays on the market. The company has 47 schools, 257 learning centers and countless bookstores.

Another cheap, easy way to play China’s educational growth story is ChinaEdu Corp. (NASDAQ: CEDU). This small play (only $134 million market cap) runs 12 universities and is still expanding. This is another way for you to double or even triple your money. But as promised, we want more. The growth potential in this field is astronomical.

Dominating the Recession-Proof Testing Market

We found a backdoor play on this fast-growing market. This company is not a pure education play, which saves us from making a huge mistake in this recession. We’ll get to that in a minute.

Instead, it is the market leader in testing services. It runs computer-based testing operations for the government, corporate industries and, of course, academic institutions. The company’s testing platform consists of everything these customers need.

For instance, 11.4% of the company’s revenue comes from the Securities Association of China, which is the People’s Republic version of the SEC here in the U.S. The Securities Association pays this tiny Chinese play for its employees or potential employees to take regulation tests on the company’s systems. The number of tests and regulations has only gone up over the past several decades as the Far East superpower continues to open up to foreign investors.

In academia, the company is also a huge player. Nearly all students have to take tests like the SATs or ACTs here in the U.S. just to get into school. They also have to take placement tests to determine what level of schooling they are at. This is like when you take a Spanish test during freshman orientation to see at which level you should start.

All these tests add up, and the industry is continuing to blossom. So why are we looking at this backdoor play into education?

While this industry continues to grow at a fast pace during this recession, people are taking a few years off school to work. When that happens, schools don’t get paid. But this company does. You see, it doesn’t matter where these would-be students work: There’s a good chance they’ll have to take a test at some point. This bodes well for the company. It gets paid no matter what: if the person is in school or applying for work.

It’s as simple as that. So why do we think this is such a huge opportunity? Simple: The company is growing at record speed even though the rest of the economy is sinking. Once we hit a recovery, or at least when investors come back into the market, this one will be huge.

As you can see in the accompanying chart, the number of exams delivered took off last year as the rest of the global economy collapsed. Now is the time to buy, before anyone realizes it.

Sincerely,
Jim Nelson

July 7, 2009

Looking for Quadruple-Digit Gains in the Far East “Test” Market was originally featured in the Penny Sleuth.

One bit of news that grabbed me was that China officially passed Germany as the third largest economy in the world, behind the U.S. and Japan. (Although by another measure, it is No. 2, and has been for some time.) Most folks probably shrugged. It was inevitable, after all.

But it shows that China’s role in the global economy is bigger than ever. Even amid a global depression, China’s potential is mind-bogglingly vast. What follows are some thoughts on China’s potential…

China Will Be No. 1 When?

If China’s economy continues to grow at its current rate, it will pass the U.S. as the world’s largest economy in 18 years. Of course, it won’t grow at its current rate for 18 years — not continuously, anyway. It will grow somewhat slower in spots and sometimes faster. What growth rate comes out in the end is anybody’s guess, but the 18-year guess will probably be off.

Then again, the guess also assumes the U.S. stays where it is. And that is also unlikely. The U.S. economy shrank last year and looks to shrink again in 2009. Meanwhile, China is one of the few big economies still growing, though at a slower pace. The result is that China will actually make up ground faster in 2009. As Ting Lu, a Merrill Lynch economist based in Hong Kong, notes: “In 2007, the gap between the growth rates of China and other big countries was huge. Actually, in 2009, the gap between will be even bigger.”

As the Great Depression II continues to lay siege to the world’s economies, China remains a coiled spring of growth. Even though China is now the world’s second- or third-largest economy, it still is a relatively poor country. And its resources are barely tapped.

The vast potential of China is hard to grapple with. Already, China has built the world’s largest building (Beijing’s airport terminal) and its longest transoceanic bridge. It has the world’s fastest train and the biggest dam. As John Pomfret, former bureau chief for The Washington Post in Beijing, observes: “It is a nation of builders, of grand schemes, of gigantism.” He calls China’s engineers “some of the world’s biggest risk-takers.”

The Key in Unlocking Resource Treasures

The Qinghai-Tibet railway was another engineering feat. Chinese engineers, already considered the best railway builders in the world, built a railway on the complex and shifting permafrost linking Llasa with Golmud in China’s western hinterlands. The railway stretches hundreds of miles across a treacherous plateau.

Author Abrahm Lustgarten in China’s Great Train describes the area as one of “intermittently frozen marshes, lakes and soggy permafrost that heave and shift more actively than almost any other geologic environment on Earth.” In places, the quicksand is deep enough to swallow a tank. It is also higher than any other railway on Earth — at its peak, more than 16,600 feet above sea level. The cars of the train are pressurized as in an airplane, with oxygen pumped in.

After this stretch of the Qinghai-Tibet railway opened in 2006, the riches of Tibet started to come to light. The Ministry of Land and Resources disclosed huge resource finds — big veins of copper, zinc, lead, iron, gold, silver and other minerals.

“The new reserves make Tibet one of the richest regions in China’s territory,” Lustgarten writes, “and could shift the country’s reliance on imports of copper and iron altogether.” Tibet could hold 40 million pounds of copper — one-third of China’s total. There is more than a billion tons of high-grade iron ore.

More than just minerals, there is also an abundance of oil. Sinopec estimates some 65 billion barrels of oil will become accessible in Tibet. “A find, that if proven,” Lustgarten writes, “would make the region one of the next great petroleum envies in the world.”

What makes these projects economic now is the Qinghai-Tibet railway. Many Canadian and Australian companies already have joint ventures in place to mine the plateau.

Booming Lhasa… And China’s Electricity Use Grows Again

The economy boomed in Llasa, too, thanks to the railway. The number of restaurants and bars in Llasa increased over 20% within a year of the railroad’s completion. More than a million tourists took the train west to Llasa. Where it was once hard to find a hotel room in Llasa, over 660 hotels sprouted up after the railway. One, the Brahmaputra Grand, is a luxurious hotel with crystal chandeliers the size of Volkswagens and 50-foot tall plastic palm trees. A night here set you back $1,100.

Tibet industry up to that time was mostly in trading yak tails, fur and salt. And now, it looks as if Tibet will play the role of China’s great western frontier, much like America west of the Mississippi in the 19th century.

There will be and is an ugly side to all of this that I’ve not talked about — the suppression of ethnic Tibetans and the weakening of a very old culture. China, though, continues to build and build. As Lustgarten notes: “The western outposts are linked by an expanding transportation infrastructure — roads, power transmission lines, pipelines and railways — built at a rate that makes Dwight Eisenhower look lazy.”

But as with the rest of world, the pace has cooled. The fingers of depression wander all over the globe. No one can say how long it will take to work out of this mess.

However, some hopeful signs emerged recently. The China Electricity Council reports that electricity consumption rose nearly 7% in December, year over year. (More on that below.) If no one has doctored up those numbers, that would be the first such increase since July. And there is some anecdotal evidence that housing prices in China are on the rise again.

Nonetheless, over the long term, China has lots of room and resources to grow. We got a glimpse of the implications of that growth in the last several years — the huge pull on resources such as oil, for instance. At the moment, economic depression has set in most everywhere. But longer term, it seems foolish to bet against the great dragon in the East.

Sincerely,

Chris Mayer

January 29, 2009

A Coiled Spring of Growth was originally featured in the Penny Sleuth.

I’m talking about Franklin Delano Roosevelt in 1933. But the same thing could apply to the 44th president of the U.S. in 2009. Barack Obama plans to spend $700 billion over the next two years as part of a new plan to give a jolt to a flagging economy. It’s a kind of “new” New Deal.

His stimulus package is big – it’s more than what the U.S. has spent on Iraq in the last six years. It also rivals the Paulson bailout plan. And Obama’s stimulus plan just gets bigger and bigger. During the presidential campaign, it was $175 billion. Heck, by the time he takes office, we could be talking about numbers that begin with a “T.”

Where is all that money headed? It’s basically new money for public works projects to repair the nation’s crumbling infrastructure. It’s a lot of money for highways, bridges and water infrastructure projects. It will also include a fresh infusion of cash to promote alternative energy and green technology.

China has its own $586 billion new deal, too. When the world’s two largest economies plan to spend that much dough, you’ll want to know where it’s going. The short answer is infrastructure. As investors, we have a window to cash in on a sort of government-guaranteed prosperity. You don’t have to like it, but you can profit from it.

Most of it will go toward highways, railroads and airports. Already, China’s infrastructure spending has grown at a pace of 20% annually for the last 30 years. The impact on China’s economy has been transformational. For example, new highways now connect small far-flung rural towns to much larger booming cities. As a result, the economic activity between the two areas is in full bloom.

This transformation in China reminds me of the effect canals had on trade in the U.S. during the 1820s and ’30s. The Erie Canal alone cut transportation costs by 90%, according to Tomorrow’s Gold by Marc Faber. It linked the Great Lakes grain markets to New York. Canals more closely knit the interior part of the country with the Eastern seaboard, resulting in explosive growth in trade.

How to pay for these plans is a question neither country seems all that concerned with at the moment.

There is this belief that you must stave off economic contraction at any cost. Meanwhile, the U.S. government’s fiscal position is atrocious, with a deficit closing in on $1 trillion and the federal debt approaching $10 trillion. China is in much better financial condition. But China’s stimulus plan is still a big bet. It’s about 14% of the Chinese economy. As The Wall Street Journal reports: “The central government likely will have to significantly boost its own debt sales to fund the stimulus.”

Both big expansion plans will probably end badly eventually. America’s infatuation with canals that began in the 1820s led to a canal boom that ended in tears by 1836. Canal stocks collapsed, over 1,500 banks failed, nine-tenths of Eastern factories closed and a depression began that would last to 1842. Ultimately, these plans likely lead to wasteful spending and overinvestment. In finance, as in an Argentine steakhouse, everything gets overdone.

For now, investors have a window to capture huge gains from the global infrastructure spend. As I write, the U.K. just announced a $30 billion stimulus plan – with huge chunks of money for infrastructure. Argentina quickly followed with its own big plan. The news agency AFP calls it “a massive public spending plan to pump more than $21 billion into Argentina’s infrastructure.”

This is the dominant theme – think of it as a kind of contagion. Soon every government with a slowing economy from Capetown to Moscow, from Brasilia to Bangkok, could follow suit. All of which spells a possible golden age for those that make asphalt, water pipes, wind towers and the like. It should be a nice ride for investors who get in now, especially as prices for these stocks have become so cheap.

Until next time,
Chris Mayer

January 2, 2009

Investing in the Global Infrastructure Boom was originally featured in the Penny Sleuth.