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By Jeremy Glaser | 11-04-2012 02:00 PM

Reasons to Increase Your Stake in China

BaoCap's Kevin Carter says there's no imminent landing--hard or soft--in China, and with the country's 35% contribution to global GDP growth, investors should up Chinese exposure in the consumer and tech sectors.

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Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. I'm here today at the ETF Invest Conference with Kevin Carter. He's the CEO of BaoCap. We're going to talk about China's growth trajectory and how U.S. investors should think about investing in the country.

Kevin, thanks for joining me today.

Kevin Carter: Sure, thanks for having me.

Glaser: There has certainly been a lot of talk about if China's going to have a hard landing or a soft landing. You kind of reject that lens. Why do you think about China's growth a little bit differently?

Carter: I don't think there's a landing involved in a country's growth curve. I mean I think that when people talk about a hard landing, I think what they're talking about is whether China is going to fall apart, or if there are going to be terrible economic calamities. The fact is China is slow. Everyone knows China is slowing. China's been slowing for the better part of a year, and that's going to continue. It's going to slow down because of the law of large numbers, and it's also slowing down because the places that have been China's biggest consumers of China's goods--Europe and the United States--those economics have slowed down. So, China's clearly slowing, but the analogy of a hard or soft landing, I just don't think it really fits the situation.

Glaser: So, what kind of policy tools does China then have to kind of make that slowdown not become that landing? How do they really keep that from happening?

Carter: Well, first of all, I think it's important to understand that the Chinese government has done a number of things to slow down the economy themselves. So, for the last almost three years it's been Chinese policy to try to stop the growth in home prices and in fact bring home prices down. This is not a stance that they've softened on even with the rest of the global economy slowing down. So, I think it's important to understand that China has had their foot on the brake and just letting go of the break in some ways would be some sort of stimulus.

China also has a lot of reserves, and I know there's a lot of debate about whether or not they have too much infrastructure already. Are they building bridges and roads to nowhere? But the fact is they do have a lot of money in the bank, and they can stimulate through infrastructure-types of projects, which I think the middle and west regions of the country certainly still need. And then there are other things they can do around the edges to help with consumption--lowering taxes and so forth.

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