If you have been paying attention to global financial markets or you have been watching or reading the business news, then you might be aware that China’s economy is experiencing a slowdown.
Because of the U.S.-China trade spat, the world’s second-largest economy is slumping to levels unseen in nearly 30 years, and the experts do not see any relief in sight. As a result, the yuan is taking a beating, the government is employing a series of stimulus measures that will hit the public purse, and the central bank is maintaining historically low interest rates to spur growth. Only time will tell to see if China can weather these turbulent storms.
Whether you want to invest in Beijing or you’re thinking about travelling in China, it is important to equip yourself with the knowledge of the national economy in the Far East.
Here are 10 facts about the Chinese economy:
1. World Superpower
In the 19th century, the world belonged to Great Britain. In the 20th century, the world belonged to the United States. In the 21st century, who will the world belong to?
The consensus is that within the next decade China will surpass the United States as the world’s superpower. While there have been some new reports to the contrary, the experts still expect the Chinese economy to overcome America’s. And this would be a monumental occasion.
2. Gross National Saving
As China relies more and more on consumer spending to grow the national economy, you’re starting to witness savings rates decline. In 2017, the gross national savings rate – deducting consumption expenditures from gross national disposable income – was 45.8 percent, down from 47.5 percent in 2015. Nevertheless, it is still one of the best rates in the world.
3. Infrastructure Spending
Anytime there is a slowdown, contraction, or a crisis, the federal government employs a series of stimulus measures. The one area that Beijing concentrates on to grow the economy is infrastructure. Even during times of growth, China still roughly spends nine percent of its gross domestic product on infrastructure, constructing everything from rail lines to public transit to buildings.
4. Commodity Consumption
China consumes about half of the world’s supply of many commodities, such as (as of 2016);
- Tin and Zinc
5. Foreign Holder of U.S. Debt
Despite the lingering trade war, China is the largest foreign holder of U.S. Treasurys (debt). As of November 2018, China owned $1.121 trillion in U.S. debt, down from $1.138 trillion in the previous month. Beijing continually buys U.S. debt to help lift the value of the dollar, leaving the nation stuck in a difficult situation. If it uses its leverage and potentially offloads its holdings, then it will lose money on its investment. If it buys more, then it exacerbates the situation.
6. Economic Freedom Index
Every year, The Heritage Foundation, a conservative think tank, publishes an Index of Economic Freedom. The 2019 index placed China at No. 100 in the world with a score of 58.4 – behind Namibia and ahead of Papa New Guinea.
The nation received top scores for:
- Business freedom: 56.2
- Labor freedom: 64.2
- Monetary freedom: 71.9
- Judicial effectiveness: 75.2
China received poor scores for:
- Financial freedom: 20.0
- Investment freedom: 25.0
- Government integrity: 49.1
- Property rights: 49.9
Christmas is a magical time of the year for you and your loved ones. But did you ever feel like putting a damper on Christmas morning? Well, here is how: inform everyone that 85 percent of Christmas trees, ornaments, and other decorative material are produced in China. Or, you can tell little Timmy that 80 percent of his toys were manufactured in the world’s second-largest economy.
8. Tobacco Use
The cigarette market is booming in China, though because of the national social credit system, you could see a bear market for the tobacco industry. That said, the population consumes 50,000 cigarettes every second of each day. You might think that this is contributing to the dramatic increase in lung cancer, but you would be mistaken – you can thank air pollution for that trend.
9. The World’s Biggest Mall
You have likely heard of the retail apocalypse by now – a trend that sees brick-and-mortar stores shut down and shopping malls metastasize into barren wastelands a la Mad Max. Today, the world’s biggest mall is situated in China, which could be considered a remarkable feat. Could? Yeah, because it has been 99 percent empty since 2005.
10. Government and the Stock Market
Typically, when you’re buying stocks, you are investing in companies that you think will do well in their respective sector and see their shares appreciate in value. In China, however, when you acquire stocks you are financing the federal government. Why? Eight of top 10 stocks on the Shanghai Stock Exchange are government-owned.
Will China come out of these trying times unscathed? Or will the world’s second-largest economy be on life support? Perhaps it all depends on the outcome of the U.S.-China trade negotiations, or maybe Beijing can overcome the slowdown by instituting stimulus that will cost trillions of yuan. The next year or two shall be an interesting journey for the Asian powerhouse.