The year 2010 continues to see new benchmarks surpassed in the growth and development of the Chinese economy.
China officially became the world’s second largest economy recently and even more interesting is the fact that China became the world’s largest user of energy on the planet. The fact that China uses more energy than the United States hints that the size of these two economies are much more comparative in size than official economic indicators would suggest. The U.S. economy is calculated as a 70% consumption economy which is based on borrowed money. China’s economy produces large government and trade surpluses.
Year after year we continue to eclipse old benchmarks on the growth and development of the Chinese economy. Going forward in the future, what is the Endgame? When, where, and in what place, will the Chinese economic juggernaught eventually settle into within the global economic framework?
I would propose that in the future, we will not only see China occupy the top spot in most economic indicators but we will see China account for about 50% of every global economic statistic.
For economic pundits, investors, academics who are still using the grouping acronym “BRIC” classification which groups China with three other much smaller economies or “Chindia” grouping China and India together, you need to think again. We need a much deeper insight to profit from the ongoing boom in China.
Call it the “China 50% Rule”. 50% of the world’s steel production, 50% of the world’s vehicle production, 50% of the world’s stock market value, 50% of the world’s tourists, and so on and so on.
It seems far fetched right? Another prognosticator pitching the China story. Well, I can tell you I am no Johnny-come-lately and have lived and profited from living in China for the last 15 years.
Let’s take a little closer look at the numbers behind the China 50% Rule.
Starting with steel production, China’s steel production has since long passed the United States totals. China was already the world’s largest steel producer by the early 1990’s. China accounted for 568 million metric tons or about 45% of the global total in 2009. The United States produced only 58 million tons which was 2 tons below what they produced in 1920.
A high degree of correlation can be seen between the rate of growth of the Chinese economy and that of the demand for steel in China. Both are growing more or less at a rate around ten percent. Chinese steel production will continue to grow and should maintain well over a 50% share for the next ten to twenty years.
In only 20 years of becoming the world’s largest steel producer, China has grown to take a 50% share of the global steel industry.
Moving on to the automotive market, in 2009 we saw China become the world’s largest vehicle market. Only ten years ago, this was unimaginable. Most China forecasters expected China to become the world’s largest vehicle market but not until around 2025 to 2050. What was more shocking was that due to the global economic crisis, China did not just pass the U.S. it leapfrogged it by a mile.
In 2009, J.D. Powers forecasts that global vehicle production will be around 67million units.
China will produce around 16 million units whereas the U.S will produce around 11 million units.
China will produce about 50% more vehicle than the United States. China still does not represent even 20% of global production but according to most industry experts we have another twenty years of double digit growth to come. General Motors already sells more vehicles in China than they do in the U.S.
Ford has massive expansion plans in China to catch up.
Volkswagen, General Motors and others are predicting 35 million units in China by 2030. In reality, they always undershoot the actual numbers and will tell you off the record we could see 50 million units produced in China well before 2030.
If automotive production mimics steel production we saw China first become the world’s largest steel producer then twenty years later claim a 50% share. China become the world’s largest vehicle producer in 2009 which would mean twenty years later it could reach 50% of the worlds total and produce between 35-50 million vehicles
How about tourism? China is now the biggest tourist market in Asia, with 100 million people forecast to travel overseas by 2020. The Annual Report of China Outbound Tourism Development 2009-2010, released by the China Tourism Academy estimated that 54 million tourists would go abroad this year, up from 47 million in 2009.
Per capita these Chinese tourists are also some of the highest spending tourists. The major flood of outgoing Chinese tourism is still visiting Hong Kong, Taiwan, and Macao but as travel restrictions continue to ease these numbers will no doubt explode exponentially. Small European countries could become open air museums for Chinese tourists.
If this data still does not convince you, think about it in terms of population. If we combine the populations of the United States, EU and Japan we would come out to roughly 800 million people. China alone, has about 50% more people with a population of 1.3 Billion. As per capita living standards rise in China with double digit growth rates and an ever appreciating RMB it’s not difficult to see the application of the China 50% Rule.
The good news for global investors and the global economy is that the China 50% Rule will bring an additional 1.3 billion people into the global community and if managed correctly can provide joint opportunities for creating global wealth and prosperity for generations to come.
