An estimated 600,000 migrant workers have left China’s southern Guangdong Province due to unemployment in 2008, the China Daily said.

Most of these people are migrant workers who left their farms for higher paying jobs in factories. Now, Guangdong Province Vice Governor Huang Yunlong says that the financial crisis has brought Guangdong “the most difficult year after the 1998 Asian financial crisis,” as he was quoted in China Daily.

Notably, Guangdong has been at the forefront of China’s economic reform. Since 1978, its annual GDP has surged by an average of 13.4%, which is 3.5 percentage points higher than the nation’s average. The province now has more than 996,900 registered companies.

But just as the province became the crown jewel of economic reform, it could quickly turn into a hotbed of labor riots. If so, the unrest could accelerate the trend of manufacturers moving to lower cost providers such as Thailand, Vietnam and Cambodia – further undermining China’s ability to rebound.

Only a few days ago, Reuters reported that China could face “surging protests and riots in 2009 as rising unemployment stokes discontent” after an article appeared in the state-run  Outlook Magazine, issued by the official Xinhua news agency.

This could be the tacit message from Beijing that it is bracing for major unemployment riots as tensions rise over diminishing jobs and pay checks.

The riots could result from a culture clash as seven million freshly graduated college students vie for factory jobs with an estimated 10 million rural migrant workers.

As we have seen in the past, China’s irons fist and systematic bribery have contributed to a sense of stability that has attracted one of the high rates of foreign direct investment in the world. This valuable façade could easily crumble in the wake of a widespread insurrection by the millions of unemployed.

So while investors who like China survey the landscape through the lens of the global recession, they should also be ready for a whack to their portfolio from the angry masses.

It’s no secret that China has largely been responsible for the commodity run-up of the past few years. Now the question remains if the latest deal with Cuba could give China a new lost-cost provider of commodities. If so, it could be a bit of bad news for investors looking for a China-driven commodities run-up.

On Tuesday, Chinese president arrived in Cuba as part of a Latin American tour to strengthen ties with the resource-rich region. And his timing was impeccable.

Just weeks after Cuba’s farm sector and overall economy were rocked by three hurricanes which inflicted more than $10 billion, China parachuted in with almost a dozen trade agreements, according to Cuba’s state-run news agency.

In exchange for wider access to Cuba’s natural resources, China will rehabilitate the country’s decrepit infrastructure.

High on China’s Cuban shopping list were nickel, sugar and other agricultural products. By going direct, China is able to bypass the public markets whose fortunes have been riding on its voracious appetite for commodities.

As it now stands, China is Cuba’s second-largest trading partner, with both sides generating $2.7 billion annually – only about 3% of China’s overall trade with Latin America last year. This ranks China as second, after Venezuela, whose trade with Cuba was pegged at $7 billion.

While it may be easy to pooh-pooh Cuba’s contribution as minor, the fact is the Castro brothers are sitting on a bounty of nickel, tobacco, sugar, offshore oil, iron ore and copper. And most of it could conceivably head straight into China, deflecting potential gains from the open markets.

Earlier this month, when China said it would spend an estimated $586 billion over the next two years on a massive national infrastructure build-out, the commodity bulls roared out of the gates – expecting this new initiative to give prices a boost.

At the time, we wrote that the impact of the China plan would be minimal on commodity prices – and now with the Cuban deal we’re sticking to our guns.

But if anyone really wants to know what China’s plans for Cuba really are, just look to Macau.

This from Taipan Daily:

“Dr. Copper” is known as the metal with a PhD in economics.

This is because the use of copper is so widespread throughout our lives. Most of the appliances in your house use copper: the fridge, the dishwasher, the microwave, and the washing machine just to name a few.

By the time you add up the electrical wiring, pipes and so on, the average home uses 400 pounds of copper. And your car? Another 50 pounds.

We also know that, on average, 40% of annual copper consumption goes to building construction.

So copper prices have something to say about global construction trends.

As you can see from the chart, copper went on an extended bull run starting in 2003, topped out below $4.00 per pound, and then fell off a cliff.

The severity of the drop was registered almost all in one month – October 2008. That’s an indicator as to what degree the entire global economy slammed on the brakes as a result of the credit crisis.

But now that copper has retreated back to 2005 levels – and other base metals back to 2003 levels – what does it mean?

I can think of two plausible explanations. Either the global infrastructure boom is well and truly dead, or the panic-driven sell-off as a result of the credit crisis was overdone.

China Picks Door #2

On Sunday, November 9th, China sent a clear message that infrastructure is not dead. We still need it, China said in so many words, and we’re going to build like crazy.

In more official terms, Beijing approved a 4 trillion Yuan “stimulus plan,” with most of the funds slated for infrastructure spending between now and 2010. (In dollar terms, 4 trillion Yuan is roughly $586 billion.)

Not everyone was impressed by the news. While some called it a major development, others shrugged. China was going to spend this money on infrastructure anyway, the shruggers said. The announcement was meant more as a booster shot – a tonic for global sentiment.

My view, though, is that it doesn’t really matter whether China’s “mass stimulus plan” is truly a big shift or just new gloss on an old agenda.

The point is, that money – more than half a trillion dollars –  will be spent on infrastructure. Beijing has confirmed it aggressively and openly: the global building boom is not dead.

We Still Need It

Everything the world needed before the credit crunch, it still needs now. Bridges, roads, ports, airports, refineries, you name it. And China, a country sitting on $2 trillion in reserves, has just pledged to open up the checkbook and spend like crazy.

It’s true we don’t need any more houses in the U.S. or Britain just now – but even in the aftermath of the housing bust, countries like China and India and Brazil are on a residential upswing.

And by the way, what we do need in the U.S., and need badly, are repairs and upgrades.

America’s infrastructure – everything from sewer pipes to interstates – is on the verge of falling apart. We are looking at long-term repair and upkeep charges that run into the tens of trillions.

Basic Comforts

In sum, I like the base metals here. (I like precious metals too, but that’s a different story.) If you’re looking for good, safe places to put your money, I would consider some of the well-run base metal producers.

To recap:

• Base metals (also known as industrial metals) have been unduly crushed by the credit crisis.

• The market is acting as if the global infrastructure boom is dead and buried.

• China’s 4 trillion Yuan (nearly $600 billion) “mass stimulus plan” says infrastructure spending is not dead. Maybe they were going to build like crazy anyway… but that’s the point.

• It’s the world, not just China, that has plenty of building left to do. In due time we will see a return to global growth, and a return to pre-crisis trend patterns.

• The U.S. might have a housing glut, but we are looking at huge outlays on the maintenance and upkeep side of things. The longer we put off these repairs, the more pressing they become.

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A Quiet Oil Hedge

Oh, and one more thing. Another modest benefit of base metal producers is their negative correlation to oil prices.

In other words, if you’re holding any long energy positions in your portfolio – and who wouldn’t be with the bargains out there now – you have exposure to slumping oil prices right?

As heavy users of diesel fuel and electricity, the base metal miners can actually benefit from weak oil prices (which lower their production cost).

As I said, not a huge factor… but a modest diversification benefit for an energy-biased portfolio.

The “Lethargy” Strategy

When will base metals prices start to rise again? I don’t know. But I’m not buying these producers for a trade, so I don’t have to know. I can be patient.

In the past Warren Buffett has joked that “lethargy” (laziness) is a key component of his investment strategy. I’m taking a page from the Buffett book here.

In practice, that means I’m on the lookout for high quality base metals producers with strong balance sheets, plenty of cash in the bank, good cash flow, smart management, and low share prices to boot.

When you come across a company with the above characteristics, you can just buy a good chunk of shares, throw the position in a drawer, and sit back to wait for the inevitable double or triple.

Source: What China’s “Mass Stimulus Plan” Says About Where to Invest Now

China will spend an estimated $586 billion over the next two years on infrastructure projects. While this will reduce the growing unemployment crisis in China, it may not be enough to for a sustained recovery of the country’s stock markets.

Once again, China trumps the U.S. in long-term fixes.

While Obama talks about creating jobs through financial incentives for green industries, China is getting back to basics. It will spend about 7% of its GDP each year to build new roads, railways, airports and low-cost housing.

The $586-billion allocation includes some previously announced projects, but in the grand scheme of things it’s a hefty move by any measure.

Beijing said it’s the largest economic stimulus package ever by the Chinese government. Notice the term “economic stimulus” versus “bailout” and investors can see where to go long with their money.

China’s exports, the backbone of its economy, are way down as consumers around the world resist Chinese products. As a result, unemployment is way up – a concept virtually unthinkable as early as the beginning of this year.

After all, China has seen a five-year growth spurt in excess of 10%. Current predictions call for growth this year to approach 6%, with next year’s growth pegged at 5-6%.

It’s currently too soon to tell how quickly China’s stimulus package will be felt in terms of economic impact.

After all, China’s infrastructure budgets have already been growing approximately 20% annually over the past 20 years or so. Given the downturn in China’s economy, this newest infrastructure program could turn into a zero-sum strategy.

But even if that’s true, China will have a state-of-the-art transportation network to make it more competitive with the eventual rebound of the global economy.

By contrast, we will have wind turbines and compost heaps as the next administration moves into the White House.

Fear is one thing, but new economic ties to perhaps the fastest growing economy in the world surly stands for something when evaluating the prospects of ^TWII – especially since the index is down over the past 52 weeks from 9,437.43 to a tempting 4,110.09.

The trade agreement between China and Taiwan has been in the works for the past six months, following the election of Taiwan’s new president, Ma Ying-jeou.
With missile threats and naval exercises by China perhaps a thing of the past, Beijing and Taipei buried the political hatchet to work on strengthening economic ties.

The timing does indicate a sense of desperation by both nations to cooperate in this devastating global cash crunch.

Under the new accord, China and Taiwan will expand shipping, air travel, food safety and mail service – underscoring Taiwan’s role as a major transportation hub in the region. It also means that Taiwan’s high-tech industry will get a boost with unfettered access to the mainland’s growing middle class.

The news, however, lacked the fuel to send up ^TWII. The index has been see-sawing since mid-October – closing at 4,995.06 on Nov. 3, down from a monthly October 1 high of 5,764.01.

Rather than looking to Beijing, it seemed that all eyes were on Taiwan’s central bank, as it cut interest rates on Thursday for the third time in about a month.
The central bank cut its benchmark discount rate by 25 basis points to 3.0%.

It’s the central bank’s third reduction since late September and follows cuts on Wednesday by the U.S. Federal Reserve and the central banks of China and others.

In a way, ^TWII represents a trading mentality of hope against hope.

As fear grips the world’s markets, ^TWII could make a rational choice for investors who tend to see that the numbers underlying this new agreement favor Taiwan.

If you read the Wall Street Journal or The Economist dire warnings are now being issued about China’s economic growth.

While China is experiencing “negative growth” you get the feeling that somehow the slowdown is taken out of context – giving investors a somewhat distorted view of the current opportunity.

The bad news started when China’s National Bureau of Statistics announced that economic growth Q3 was 9% year-on-year, down from 10.1% in the previous three months. China’s economic growth could actually drop below 10% for the first time since 2002.

Still, to put that into perspective, the U.S. GDP for Q2 gained 2.8%, up from 0.9% in Q1. That means China’s growth was 221.4% higher than what the Bush administration was able to squeeze out of our economy.

Have there been recent bankruptcies in China? Yes.

Has the workforce shifted from a shortage to a surplus? Yes.

Are commodities prices lower because China is slowing down? Yes.

But the fact remains that China is still perhaps the most robust economy anywhere – especially with rogue petro-fascist states like Venezuela, Iran and Russia suddenly finding themselves nose-diving into a deficit with shrinking oil prices.

The thing to keep in mind is that much of this retraction can be attributed to the post-Olympics blitz. Plenty of jobs were created thanks to China’s $42-billion budget to host the Olympics (including infrastructure build-out) plus another $100 million on the opening and closing ceremonies.

It is any wonder that prices of construction materials are dropping?  Or that all of a sudden there’s an over-capacity of hotel rooms?

At the same time, inflation is China has dipped to 4.6% in September from a peak of 8.7% in February.

Better yet, many of the national banks are still solid and the savings rate for Chinese consumers remains high.

We read about how exports are suffering from tight cash in the West.

But what we’re not hearing is that China will spend massive amounts on infrastructure in the future.

By 2025, an additional 5 million buildings — including up to 50,000 skyscrapers, or the equivalent of 10 New York Cities — could be built in China, said the McKinsey Global Institute.

China will spend $62 billion on 97 new airports by 2020.

As recently as July, Merrill Lynch raised China’s three-year infrastructure projections from $400 billion to $725 billion – an increase of 81.2%.

These ongoing investments in fixed assets means that China is funneling 45% of its GDP into construction and infrastructure, a record-breaking number according to the Standard Chartered Bank in Shanghai.

Admittedly, China’s economy is no longer in hyper growth. But instead of seeing the glass as half empty, it should be seen as half full.