While economists continue to debate whether the mixed bag of economic data coming out of the U.S. qualifies as "green shoots" of recovery, or the "brown weeds" of a possible double-dip recession, the recent economic data coming out of China has convinced many economists that China may have already left recession behind.

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Growth Back On Track
Recent data shows that the Chinese economy grew at a better-than-expected rate of 7.9% during the second quarter, the first pick-up in two years as the government's $585 billion stimulus package appeared to be having a positive impact.

Investors in Asia have been betting that things would pick-up in that region before it did elsewhere, driving MSCI Asia Pacific Index to a nine month high. At this point the index is no longer the bargain it once was, now trading at a fairly lofty expected earnings price/earnings ratio of 24 times, well up from the 14 times level from the beginning of the year.

While this suggests that the train might have already left the station in terms of the opportunity to snap up any shares directly benefitting from a resurgent Chinese economy, there are still plenty of indirect plays for U.S. investors interested in profiting from an Asian rebound.

Demand Boosts Commodity Export Growth
Growth in China boosts the demand for commodities, and that's good news for commodity-sensitive economies like Canada. The impact shows up in higher commodity prices as well as higher export volumes.

With respect to the latter, the key beneficiaries are Canada's national rail carriers, Canadian National Railway (NYSE:CNI) and Canadian Pacific (NYSE:CP). While both CP and CNI shares have moved higher since the beginning of the year, gaining 12% and 22% respectively, they are still well off their pre-crash highs and currently priced at a reasonable 14 times 2010 earnings per share. That's roughly in line with U.S.-based peer Burlington Northern (NYSE:BNI), which is relatively more exposed to domestic economic conditions in the U.S. for its shipping volumes.

Gloves Come Off In Canadian Railway Market
As a reflection of the oligopolistic railway industry structure in the U.S., the Canadian rail system operates as a duopoly. Traditionally, both parties have tended not to get in each other's way, but that now looks to be changing. (See our article Antitrust Defined to learn about laws that try to prevent monopolies in industries such as railways.)

Taking advantage of a favorable ruling in a rate dispute with CP, Canadian coal exporter Teck Resources (NYSE:TCK) recently made a surprise decision, shifting some its export volumes to CN. That news sent CP shares down 7%, and appears to have strengthened CN's position in the western Canadian export market feeding Asian demand.

Described as the most efficient railway it covers, independent stock rater Standard & Poor's currently has a buy call on the company. While CN recently reported a 16% drop in second-quarter profit, the company remains upbeat on the second half, citing a pick-up in west coast container traffic in recent weeks.

The Bottom Line
China's economic recovery is likely to run well into 2010 and beyond. Canadian rail carriers like CN stand to benefit from this growth, and their shares are still reasonably valued. Time to get on board. (For additional reading, check out Build Your Portfolio With Infrastructure Investments)

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