The Unsustainability of Chinese Investments: Caterpillar Inc. (CAT) and More

If you want to get a macro picture of China, it’s just as difficult to be sure of the reported figures. While China’s official GDP growth numbers for 2011 and 2012 were 9.3% and 7.3%, respectively, a Standard Chartered analyst estimates that the actual figures were 7.2% and 5.5%. Unfortunately, no matter how much you tell yourself that your portfolio grew 30% larger than it seemed last year, the reality is different.

Supporting questionable behavior
The latest report of an elite Chinese military hacking group that attacked more than 140 U.S. companies over the last seven years should give investors another reason not to take on Chinese risk. In a country where an estimated 80% of software is pirated, China recently said it would do more to protect intellectual property. No matter whether China actually takes on stronger intellectual-property controls or companies continue to pilfer, Chinese companies will need to adapt to achieve stable growth; building off of competitors’ designs is not a long-term strategy.

Long-term investing
While you may decide that the risks of government interference, lax accounting, and intellectual-property problems are worth the reward of investing in Chinese firms, I believe there are clearer and more conscientious opportunities. For example, there are plenty of American companies that operate in China but don’t carry the same risks.

The article The Unsustainability of Chinese Investments originally appeared on Fool.com and is written by Dan Newman.

Fool contributor Dan Newman has no position in any stocks mentioned. The Motley Fool recommends Baidu, Google, and SINA. The Motley Fool owns shares of Baidu and Google.

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