China has been making a lot of headlines lately with tumbling stock markets and surprise devaluations of the yuan that has the global economy worried about the country's slowing growth. Aside from recent headlines, China’s economy has been a big deal for a while now having grown at an average of 10% since beginning the implementation of free-market reforms over 30 years ago. In case you didn’t know, here are five interesting facts about the Chinese economy.
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 $17.62 trillion in 2014. Using the market exchange rates for making inter-country comparisons China ranks second behind the U.S. with a total GDP estimated at $10.38 trillion in 2014.
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. (For related reading, see: Why Is China Stockpiling Millions of Barrels of Oil?)
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 combined, have a total market capitalization of $10.3 trillion 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. (For more, see: The Origins of the Chinese Stock Market Collapse.)
China’s Currency
Officially, China’s currency goes by the title of the renminbi (RMB), but it is more commonly referred to by its basic unit of measure—the yuan.
China has been criticized by U.S. lawmakers for keeping the value of the yuan artificially low relative to the U.S. dollar in order make its exports more competitive. Yet, the yuan has actually appreciated more than 30% against the dollar since 2005, and the move by the People’s Bank of China (PBOC) to devalue last month was welcomed by the International Monetary Fund (IMF). The fund views the new lower value as more consistent with a value determined by market forces. (For more, see: What China Devaluing Its Currency Means to Investors.)
Corporate Sector
This year, China had 98 companies make Fortune’s "Global 500" list ranking it second behind the U.S. with 128 companies. But 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 the top 12 of these 98 companies are all 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.
Yet, consistent with China’s attempts to move from a communist to a more market-oriented capitalist economy, recently the Chinese State Council has approved new measures to create greater distance between the government and the day-to-day operations of its SOEs.
The Bottom Line
China has managed to become an economic powerhouse in a relatively short period of time and has become a major factor in international economic affairs. But, as China looks to implement further free-market reforms and transition from an export and investment-driven economy to a consumer-driven economy, its growth rates are likely to be permanently lower than they have been over the past 30 years. While this should provide for more stable growth, the rest of the world will have to get used to lower global demand, at least in the short term.
