Key attributes of the Chinese Economy
China was for a long time the world’s fastest growing economy, powering ahead with double digit GDP growth. But the Chinese dragon showed signs of fatigue when the official GDP estimates, which experts have been skeptical of in the past, fell below 7%. There was a lot of optimism about the Chinese economy since beginning the implementation of free-market reforms over 30 years ago, but recently it has made headlines for all the wrong reasons, whether it is slow growth or currency devaluation.
Economic Size
According to the purchasing power parity measure of comparing total gross domestic product (GDP), China had the largest economy in the world estimated to be 19.95 trillion USD in 2015. Using the market exchange rates for making inter-country comparisons, China ranks second behind the U.S. with a total GDP estimated at a little more than 11 trillion USD in 2015.
Regardless of the measure, China’s economy is massive as it accounts for 15% of total world output and has been responsible for about half of global output growth in recent years.
Largest Energy Consumer
In 2010 China became the world’s largest energy consumer and stands as the second biggest consumer, albeit the world’s largest net importer of oil. This makes China extremely significant for global oil demand and consequently oil prices. In fact, slower growth in China is definitely a major factor in the recent plunge in oil prices over the past year.
The double-digit growth that China has experienced in recent years is likely to be a thing of the past and hence lower oil prices could also be the new status quo, at least for the near future.
Stock Market
Again, massive is the best word to describe China’s two stock markets—the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SHZ)—that have a combined market capitalization of 7.8 trillion USD that is second only to the New York Stock Exchange (NYSE).
Yet, despite their size, less than 7% of urban Chinese citizens invest in the stock market and less than 5% of total corporate financing is funded by equity; debt and retained earnings are the primary source of funding for Chinese companies. Evidently, China’s stock markets play a much smaller role in the Chinese economy than U.S. stock markets do in the American economy.
Corporate Sector
In 2016, China had more than 100 companies make Fortune’s “Global 500” list, ranking it second behind the U.S. And while Wal-Mart continues to rank #1, the next three spots are occupied by Chinese firms. The number of Chinese companies making the top 500 list has been growing rapidly as only 10 companies were based in China in 2000 and only 46 in 2010.
Perhaps even more interesting is that many of companies are state owned. In fact, these state-owned enterprises (SOEs) make up a full quarter of China’s mainland economy. The SOEs have been able to garner generous state support throughout the years helping to insulate them from private competition.