Mingchun Sun, chief China economist for Nomura International PLC, said the Chinese government could formally announce the bigger spending plan in March or April.

Since the original stimulus proposal was announced, state and local governments unleashed a long list of projects previously held back because of initial concerns of keeping growth from getting out of control, Sun said. And with a surge in bank lending in January, China is better suited to finance more infrastructure investments.

“Looked at from the perspective of demand and financing capacity, I don’t think it will be a big problem to get to 7-8 trillion yuan,” Sun said in estimating the size of the eventual stimulus, Reuters reported. “It could be even higher.”

So far, several Chinese leaders have hinted that an increase in spending is on the way.

On Monday, the Communist Party’s council said that it would bolster investment to support growth, Reuters reported. A day later, President Hu Jintao said that China would take additional steps to boost domestic demand.

More spending could set off an investment boom similar to that of the early 1990s.

“This may be a harbinger of another investment boom. The only similar big encouragement made by the central government was by the late leader Deng Xiaoping and thanks to that the economic situation took a big turn for the better,” Sun said.

Deng’s decision to push growth also caused inflation to peak at 24.1% in 1994, Bloomberg reported.

Two years ago, Sun forecast that China’s gross domestic product (GDP) growth would slow to 8% in 2009.

Source: Economist: China Stimulus Could Double in Three Years

Here’s a quote from the New York Times:

“The price of oil this year will turn on several developments around the world, among them the rise of China’s economy, whether the United States dollar continues falling as many in the industry expect and political uncertainty in nations with substantial oil reserves: Iraq, Russia, Venezuela and Saudi Arabia.”

Here’s the paragraph that followed that one:

“Major developments in any of these areas could cause the price of oil to rise from its current $32.52 a barrel for light crude on the New York Mercantile Exchange. Barring any unexpected or calamitous events, many analysts say it is even possible that the price will slip slightly, possibly to $27 to $30. But the price is expected to remain relatively high.”

Oh yeah, that quote is from a story The Times ran on Jan. 4, 2004.

Now, try this quote on for size. It’s from Time Magazine:

“And just as oil is seen driving American foreign policy, so too are China’s geopolitical strategies increasingly influenced by the country’s inability to meet its energy needs solely through domestic production. Last week Russian President Vladimir Putin began a state visit to China, during which Chinese President Hu Jintao was expected to press for the swift approval of several proposed billion-dollar, oil-and-gas joint ventures between the two countries, including a pipeline to connect Russia’s oil fields with China’s main domestic distribution network.”

Ripped from today’s headlines, right?

Nope. It’s from Time’s, Oct. 18, 2004 issue.

And, by the way, the New York Times was wrong. The price of light crude didn’t drop in 2004. By Oct. 18, it was making big news when it edged to $55 a barrel.

Of course, sooner or later, you know I am going to use a quote from fresh story. Maybe it’s this one. After all, it’s about the President’s reaction to something that’s been in the news as recently as last week.

“President [Bush] rejected suggestions Wednesday that he release oil from the government’s strategic reserve in a bid to ease the price of gasoline, accusing Democrats of “playing politics” over soaring gas prices.

“Bush said he “fully understands” how the rise in prices “affects American consumers, how it crimps the budgets of moms and dads who are trying to provide for their families, how it affects the truck driver, how it affects the small-business owner.”

But, guess what? That’s old news, too – Los Angeles Times May 20, 2004.

You see, my point is this – look around your world and ask yourself what’s really changed in the past four years… what’s really driving the price of oil up?

From where I sit, the answer is pretty much “not much that I can see,” unless you also consider how vast the leadership vacuum in Washington has become. Or, you consider oil company CEOs as national leaders.

And, before you Presidential apologists get all scrunchy nosed at the mere mention of Washington and leadership vacuum, I picked 2004 just to be fair. It represents four years of President Bush and fours years of a Democratic controlled Congress… four years that flashed by since these quotes were published.

Four years of zip, zilch, zed, zero on the leadership front when it comes to oil policy. That is, unless you call it leadership when oil executives whine to Congress on a regular basis about how their hands are tied when it comes to prices and anyway, “we’re always concerned about shareholder value.”

I love that last one by the way, like we’re so dumb that when they say “shareholder” they think we hear stakeholder.

The Truth Will Bust You Flat Broke

But, sometimes those oil executives do tell the truth, though blaming global demand is not part of that truth.

You see, the US burns about 21 million barrels of oil a day, of which close to 12 million barrels are imported. China only goes through about eight million barrels a day, of which four million must be imported.

But, the truth is that oil executives were correct back on April 1, when they told congress that the price of a barrel of oil should be about $55 (it was mere $100 then).

According to the oil executives, the price discrepancy – one that continues today – is due to oil futures speculators running the price up.

Based on my 20 years of experience in the region and formal academic study, you can believe me when I say that this may well be the most pivotal event in 20 centuries of Sino-Japanese relations.

We’ve reported some of this to you already. But the mainstream Western press hasn’t latched on to it.

That’s not to say they haven’t reported what happened when Japanese Prime Minister Yauo Fukuda hosted Chinese President Hu Jintao during the historic summit the two held in Tokyo last month – the press reported everything that “happened,” and did so exceptionally well.

However, like so many things in Asia, mainstream journalists completely missed the subtleties and, not surprisingly, that’s where the real story usually is.

But you’ve got to know how to read between the lines to get at the “real” meaning of what was said.

Here’s why.

When translating both Chinese and Japanese to English, there are both literal and figurative translations to consider. Frequently, inexperienced commentators (and even experienced ones) will provide one without the other.

And that’s too bad, because it’s the context that’s “everything” in Asia – and I mean that literally.

Unlike Western romance languages – which descended from the resconstructible Proto-Indo-European language family, and which are logically oriented – Chinese languages are commonly believed to have descended from the Proto-Sino-Tibetan family while Japanese is understood to have come from a context-driven lexical borrowing process in the region.

As a result, Western languages are frequently blunt and to the point, while both the Japanese and Chinese languages historically rely heavily on context and symbolism: In other words, the “real” meaning is not the words, but is instead found in the symbolism associated with those words.

And that’s not exactly something you can explain in a 10-second CNN sound bite, so most news stations don’t bother.

For instance, during their historic five-day Summit last month in Japan, Prime Minister Fukuda and China President Hu agreed to make 2008 a year for boosting their nation’s “mutually beneficial relationship.”

I was sitting in Kyoto when I heard that, and I was stunned. I’ve spent two decades studying, living in and working in Asia, and in all that time I couldn’t recall any of the prior leaders of the two countries ever sharing a more-direct, more-powerful statement. And neither could the Chinese and Japanese I spoke with that day because the words represents the single most important thaw yet verbalized in the decades old animosity dating back to World War II.

While most Westerners expected them to “settle affairs” by making some reference to historical events that have badly strained bi-lateral relations in recent years, both leaders deliberately avoided doing anything like that during their five-day meeting. And, by doing so, each side was able to state his case to the other’s countrymen without “losing face,” which is pivotally important to both countries and cultures.

Similarly, President Hu’s remarks that he’s looking forward to a “warm spring” between the two countries were translated quite literally by the Western media, although the comment had an entirely different meaning to Asians. To Asians, the comment is symptomatic of far deeper, and more intimate, nationalist feelings on a variety of personal and state levels.

By stating his desire for a “warm spring,” President Hu was making an allegorical reference to the importance of producing a bountiful rice harvest. And the reason why this makes sense to Asians is that rice has been pivotally important to both cultures for a millennium or more. That crop has enabled both cultures to make the transition from hunter-gathers to farmer, and it is also central to religious and social festivals in both countries, as it has been for thousands of years.

By referencing rice farming, President Hu was very deliberately reaching deep down into the core of both nations and sending an important message to millions of Japanese and Chinese citizens that China is ready to put the past to rest and look to the future.

In a more Western fashion, the two leaders also agreed that “long-term cooperation for peace and friendship” is the “only choice left” for both countries. This, too, is full of hidden meaning: It’s an unprecedented signal that both nations are preparing to (finally) put the horrific events – and the long-lingering bad feelings – of WWII behind them.

By putting this rancor to rest, each country will now be free to make major investments in the other’s economy – much more so than they’re doing even now.

If history is any guide, then some of the most significant Sino-Japanese trends of the future are likely to begin at the intersections of companies just now starting to flourish.

Of course, there will be course corrections along the way, but that didn’t hurt relations 20 centuries ago when Japan and China were very close – and those corrections won’t hurt them, now.

The important thing is to embrace change as it occurs.

For investors, one of the biggest profit opportunities will be with companies that are helping China build out its infrastructure and build up its consumer sector, which is why such companies as solar-ceramics maker Kyocera Corp. (ADR: KYO), and trading giant and independent power plant developer Mitsui & Co. Ltd. (ADR: MITSY), are logical choices.

In addition to seeing Japanese companies like these focusing their sights on the China market, we’re likely to see Chinese companies doing the same with Japan. While it’s not yet clear who those companies will be, it is clear to us that the initial entrée will likely be from one or more of China’s sovereign wealth funds.

Our best guess is that China investors will prefer key targets like those traded on the Tokyo Stock Exchange – especially companies that have an expertise in environmental protection and energy-saving technologies.

We also think China will make a run at construction companies with experience in large-scale infrastructure and national-building projects – all of which are in exceptionally high demand in China.

Source: The Subtle Dealings Between China and Japan Can Lead to Powerful Profits

That doesn’t sound much to get excited about, until you consider how well the Chinese and Japanese economies fit together.

Think of it this way: With China’s boundless supply of low-cost labor and Japan’s superb education system – and an ability to work together that’s clearly founded on considerable commonality of thinking – these two countries, as a pair, will be world-beaters.

In fact, they’ll be world leaders.

The Past has Passed

The summit – while modest – marked an important policy change from the mutual hostility during the premiership of Junichiro Koizumi, whose tilt to the United States and suspicion of Chinese motivations was symptomized by his love of Elvis Presley and visits to the Yasukuni Shrine, controversial because it includes convicted World War II criminals. Nevertheless, while Japan and China have many historical reasons to hate one another, so did France and Germany after World War II, and those countries have now been partners for more than 50 years in the European Union. Thus, a close economic partnership between Japan and China is by no means unthinkable.

Economically, China and Japan have much to offer each other. Both have shortages of raw materials and strong manufacturing sectors. However, the relative shortage of labor in Japan’s aging society, its superb education system and the surplus of labor in China all combine to make them natural partners. Already, Japan is China’s second-largest trading partner, taking 10% of its exports and supplying 15% of its imports. Conversely, China in 2007 surpassed the United States as Japan’s largest trading partner, taking 14% of its exports and supplying 21% of its imports.

Between them, China and Japan have a population of 1.4 billion people, more than twice that of the European Union or the North American Free Trade Association. Their combined gross domestic product (GDP) of $8.4 trillion at market exchange rates in 2007 was about half that of the EU or NAFTA, but was combined with growth of 7% in 2007, a current account surplus of $560 billion (compared with deficits in the EU and the United States) and foreign exchange reserves of $2.4 trillion.

Thus, even a loose bilateral trade association between China and Japan would be a powerful economic force. Free trade and free movement of labor between the two countries would enable them to deepen their economic relationship still further, making the Japan-China trade axis the most important in the world – even more so than any bilateral U.S. relationship. Longer-term, an EU-style economic union – perhaps including such neighbors as Korea, Taiwan and Vietnam – could become the world’s leading economic power, surpassing even the United States and the EU itself.

As a U.S. geo-strategist, one worries somewhat about this. The United States has traditionally been able to count on Japan as a counterweight, both economically, and to a limited extent, militarily against a resurgent and aggressive China. That no longer seems to be so certain; an immensely powerful alliance between Japan and China might develop into the United States’ military equal, and would certainly be animated by a world view very different from that of the United States or, indeed, the EU countries.

As an investor, one rejoices in it and seeks to find sources of future profit from the two countries’ deepening relationship. One such source of profits are major Japanese companies such as Toshiba Corp. (PINK: TOSBF). This major manufacturer of computers, medical electronic equipment and telecommunications systems has developed a highly integrated manufacturing capability in China, enabling it to synergize its technical innovation with China’s highly skilled, low-cost workforce. Toshiba’s shares are trading at about 22 times earnings, reasonable for a high-tech company.

Another might be a Chinese automotive manufacturer such as Brilliance China Automotive Holdings (ADR: BCAHY), already a strong automobile and bus manufacturer in the Chinese domestic market, which has a joint venture with Bayerische Motoren Werke AG, better-known as BMW, and potentially can benefit from its lower labor costs to attack the Japanese market. As relations between China and Japan improve, and tariff and non-tariff barriers in Japan are reduced, companies such as Brilliance may be major beneficiaries. Brilliance China trades at a pricey 48 times earnings, as it has only recently returned to profitability in the highly competitive Chinese automotive market, but its long term prospects appear excellent.

There are two categories of beneficiaries from a trading relationship between China and Japan that’s closer and more-barrier free.

The first group consists chiefly of Japanese high-tech companies that are able to take advantage of China’s lower labor costs and more-profitably attack the world markets.

The second group consists of low-cost, China-based manufacturing companies that can sell to Japan as a particularly juicy nearby market with similar cultural and taste characteristics – unlike the unfamiliar west.

Both types of companies are likely to be big long-term winners from this trend.

[Editor’s Note: For additional China profit plays, check out this special offer by Money Morning that includes a free copy of investing guru Jim Rogers’ new bestseller, "A Bull in China." The book details Rogers’ investment outlook for China plus his opinion on dozens of China-based public companies.]

Source: Two Ways to Profit as China and Japan Quietly Forge the Most Powerful Trading Alliance in the World

My wife’s family has been coming here for centuries, making it a familiar and comfortable place that we enjoy very much.

It’s also a spot that tends to put things into perspective – like the Bank of Japan’s recent decision to keep its key interest rate at 0.5%.

So why is this move by Japan’s central bank important? That’s easy.

We’ve been hearing for years how the Japanese economy is poised for a recovery. And each New Year is supposed to be “the” year – yet it just somehow never seems to happen – at least according to folks who don’t spend as much time here as I do.

Sure Japan went to hell and back during the “Lost Decade” that stretched from 1990 – 2000, but this country’s economy is recovering – even if the securities markets don’t yet reflect this: They’re up only marginally so far this year.

But that speaks volumes about what investors should expect when thinking about Japan. For instance, the beautiful young elevator ladies who used to grace Japan’s top department stores have vanished. Yet, individual customer service remains better than ever.

Many of the so-called boutique shops have also faded into the sunset. But those shops have been replaced by multi-sale retailers and Internet shops, all of which are going great guns.

This suggests companies are becoming more cash sensitive even as they’re becoming more aggressive. So are Japanese consumers. It’s a trend that’s moving Japan along quietly, if steadily.

But what’s really interesting to me after having spent 20 years in and out of Japan is the number of students who now are studying Chinese, as well as English.

Like the Japanese companies and consumers that are driving the “stealth recovery” here, students who want to get ahead are doing all they can to learn more about their neighbor, including the language.

They understand that they have to look beyond the labels that say “Made in China,” and consider the growing Chinese consumer class – especially China’s emerging middle class, which is already 325 million strong.

While some experts claim that the two nations, Japan and China, will never be friends because of World War II era animosity, those with a far longer perspective acknowledge that the two actually were very close – centuries ago. Much of Japan’s writing system, religious roots and even early architecture came directly from China’s royal courts more than 1000 years ago.

The two nations will be close again.

The best way investors can capitalize on this eventuality is not to buy the broader Japanese indices. Those will merely pick up the has-beens, wannabes and never-wases. It’s far better to concentrate on those companies that are already working closely with China.

The companies in this category firmly understand the regional dynamics at play today. But, more importantly, they understand just what the future is going to look like, and are already preparing for business dealings with China – and the Chinese consumer.

Some great choices if you want to cash in include solar-ceramics maker Kyocera Corp. (ADR: KYO), trading giant and independent power plant developer Mitsui & Co. Ltd. (ADR: MITSY), and even Toyota Motor Co. (ADR: TM), which is now the world’s No. 1 automaker, and (as Money Morning just reported) also has branched out into commercial jetliners.

Since I’m scheduled to head back down the mountain shortly, I’m going to close this out (yes, for those of you who are wondering, I really am writing on my laptop thousands of feet above Kyoto) so that I can check in on the summit between Chinese President Hu Jintao and Japanese Prime Minister Yauo Fukuda.

It’s the first visit by a Chinese head of state in a decade.

I’ll have more to say about that visit in the days to come. And I’ll be returning to the United States fairly soon, too. I’ll keep you posted.

Source: Japan’s ‘Lost Decade’ Has Given Way to the New Asian Reality