Touring China’s mega cities can be terribly misleading, so says China’s up-and-coming leader, Vice-Premier Li Keqiang. Li is correct of course. The bright lights of Shanghai, Beijing and Shenzhen tend to conceal the poverty of the nation’s many rural districts. China is huge and only a few hundred million of its 1.3 billion people have successfully risen to prosperity. That’s the crucial point in understanding China’s economic and political future. Westerners who have seen the evidence of China’s new wealth don’t understand Beijing’s obsession with aggressive economic expansion, with increasing exports and raising internal consumption. Hundreds of millions of Chinese have yet to experience the glory of getting rich (to paraphrase Deng Xiaoping’s famous call to arms).

Did anybody outside of Switzerland pay attention to the last World Economic Forum meeting in Davos? Not very many, except for CNBC’s fast-talking Maria Bartiromo. But don’t ignore China’s rising role in world economic leadership. Discounting U.S. policies is becoming routine. As one Davos speaker ventured, “the U.S. is quickly becoming ungovernable.” A Chinese delegate commented, “the lobbyists give the orders in Washington but nothing gets done.” Things couldn’t be more different in China. Whatever one feels about one-party, centrally-commanded systems, they do get things done. China’s stimulus package in 2008, followed by a huge wave of bank lending propelled the Chinese economy to double-digit growth in the fourth quarter of 2009.

In line with the robust growth witnessed over the past few months, Indian Telecommunications sector saw a record addition of 19.01 mn subscribers for the month of December 2009. Launches in new circles by incumbent players and the entry of couple of new entrants boosted the subscriber addition. The number of telecom subscribers in India increased to 562.2 mn at the end of December-09 from 543.2 mn in November-09. This reflects a growth rate of 3.5% which surpassed the growth witnessed any time in the current fiscal. This increased the overall Tele-density of India from 46.32% to 47.89% over last one month. The increase in the subscriber numbers was led by wireless segment which saw the subscription figures increase by 19.1 million to 525.15 million at the end of December-09. This increase represents a growth rate of 3.78% MoM. Wireless Tele-density now stands at 44.73%. The number of subscribers for wireline segment continued to fall from 37.16 million in November-09 to 37.06 million at the end of December-09. Wireline Tele-density declined to 3.16% at the end of December-09 as against 3.17% in November-09.

China’s growing dominance in the energy world is a key development that no investor should miss. Last year the Chinese overtook the United States to become the world’s number one vehicle market, so it is small wonder that China’s fuel consumption is increasingly important to world oil prices. Today, China’s powerful National Development and Reform Commission predicted that world oil prices will rise to $80 a barrel this year, up 25% from last year. The current price of oil is approximately $74 per barrel. China's oil demand rose 15% in December from a year earlier, underpinning a 16% increase in the sale of oil futures from mid-December to January. The International Energy Agency predicts China will need 8.82 million barrels of oil a day up 4.3% from 8.46 million barrels a day last year.

Regular readers of the China Stock Digest are well aware that China and the United States are headed in exactly the opposite direction. While the U.S. economy shrinks dramatically, China’s economy continues to expand. That makes China an obvious place to invest, but how? The trend among many investors has been to pick an Exchange Traded Fund, better known as an ETF. According to ETF fans, that’s the best way to buy a position in any given sector without having to become a stock picker. The alternative is to buy a mutual fund, but most mutual funds charge high fees and often produce subpar returns.

Fresh glimmers of China’s consumer prosperity have arrived in the form of a new report from the usually dry government-run Xinhua News Agency. Xinhua says China overtook Japan last year to become the world's second-largest diamond market. Trade on the Shanghai diamond exchange jumped by 16.4 percent to more than $1.5 billion last year, boosting China ahead of economically stagnant Japan. The U.S. remains the world’s number one market for the precious gems. Xinhua says “the year-on-year rise, when much of the rest of the world was mired in deep recession, was because of China's boisterous economic growth in 2009. As the economy continued to develop in a stable manner, consumer demand for jewelry continued to grow, especially for diamonds for the wedding market," Xinhua explains.

Three years ago the China investor community was buzzing about a proposal called the “through train” in Chinese. Longtime China Stock Digest subscribers will remember the excitement it caused. Now, after protracted policy shifts and delays, we can say for certain that the investment Through Train to Hong Kong is officially off the rails. The proposal would have created a trial program to allow mainland Chinese investors to invest their money directly in securities listed in Hong Kong. Other overseas markets were also being considered as investment targets.

Bank credit for the fortnight ended 1st January 2010, grew by 13.7% on a YOY basis as against 23.8% in the corresponding period of the previous year. During the period, banks disbursed approximately Rs. 79,514 crores as loans which mark the highest fortnightly disbursal in FY 2009�]10. On a YTD basis, credit growth remained sluggish at 9% in the current fortnight as compared to 13% in the corresponding period of the previous year. Even though, credit off�]take has witnessed a sharp rise in the current fortnight, in order to judge the revival of credit growth, it is viable to witness the growth in a few more fortnights ahead. Historically, second half of the year accounts for major proportion of the total bank�fs credit disbursal. Going forward, with IIP number expected to improve and Indian GDP outlook looking positive, we expect credit growth to improve in last quarter of the year. However, we believe that lower credit demand from corporate sector is likely to restrict the overall credit growth to reach the central bank�fs target of 18% growth for current financial year; as Indian banks will have to disburse additional Rs. 2,47,806 crores in the period from January to March 2010. Components of credit growth (Schedule Commercial Banks