China’s Massive Economic Potential

The incredible economic potential of China, with its massive population and surging middle class, can be difficult for U.S. investors to truly appreciate.

By Michael Johnston

Most investors are well aware of China’s growing importance to the global economy. Even those without a sophisticated understanding of financial markets generally know that China is a world power, home to a massive number of people and amount of physical resources. But the magnitude of China — particularly from an economic perspective — is rarely appreciated properly. Below are ten statistics that show just how much opportunity exists in the world’s most populous country and second-largest economy:

221

Chinese cities with one million people expected by 2025

According to a report from McKinsey, there will be 221 cities in China with a population of at least one million in 2025. By comparison, there are currently 35 cities of that size in all of Europe today. The complete list of U.S. cities of this size fits in the chart below:

In other words, there are currently nine U.S. cities with a population larger than one million. Within a decade, there will be 221 cities in China of this size.

611,000,000

Number of Chinese without a smartphone

There are more than 600 million Chinese citizens — nearly twice the population of the U.S — who don’t own a smartphone or use the internet regularly, according to a 2014 Pew Center study. With adoption rates expected to increase in coming years, hundreds of millions of Chinese will have access to the internet for the first time.

According to Google, about 47 percent of the Chinese population had a smartphone in 2013. That ranks ahead of many other emerging markets, but well behind many advanced economies.

12,036

Length (in miles) of China’s high-speed rail network

The Chinese network is larger than the high-speed rail in the rest of the world combined. With trains that travel as fast as 240 miles per hour, this infrastructure project has made travel throughout the sprawling country significantly easier in recent years.

The massive rail network is one of many examples of China becoming a leader in developing and implementing new technologies. And the work is far from done; China is expected to spend nearly $250 billion building a direct connection to Moscow.

48.3%

China’s share of global pork consumption

According to OECD data, approximately half of pork consumed worldwide in 2014 was consumed in China.

China has become the largest user and importer of many commodities, including agricultural resources needed to feed a growing middle class and construction materials needed to keep up with an extended infrastructure boom.

97%

China’s market share of rare earth metals

China is responsible for about 97% of the global production of rare earth metals, a group of 17 minerals that are used in the production of hybrid vehicle components and other clean energy products.

Global demand for rare earth metals is expected to increase materially over the coming decade as production of many high tech goods ramps up. China’s near monopoly on these natural resources ensures that the country will be a major player in several high growth industries.

101

Number of cars owned in China for every 1,000 people

In other words, about one in ten people in China have a car.

Coupled with the size of China’s population (see above), this highlights the tremendous opportunity for the sale of consumer products in the country. In order for car ownership rates to equal the U.S., China would need to purchase about 960 million vehicles. That is equivalent to about 60 years’ worth of new car sales in the U.S., where consumers purchased 15.6 million new vehicles in 2013.

10,000,000,000,000 (10 Trillion)

Size of China’s 2015 and 2016 infrastructure plan, in yuan

The amount expected to be spent by the government on more than 400 infrastructure plans in 2015 and 2016 equates to about $1.1 trillion. The plan will be spread across a number of industries, including oil and gas pipelines and clean energy, and is being financed through state and local government as well as state-owned corporations.

By comparison, in the U.S., president Obama recently released a budget that included about $478 billion in infrastructure spending spread over six years.

4,828

Number of Kentucky Fried Chicken locations in China

According to Yum! Brands, the number of KFC locations in China now exceeds the number of stores in the U.S., and far exceeds the number of combined locations in Japan, Great Britain, Australia, France, and Germany.

As China’s middle class continues to grow, demand for protein has skyrocketed. The ability to eat out at a KFC is a luxury now within the reach of a record number of Chinese, and will continue to climb in coming years.

195,000,000

College graduates expected in the workforce by 2020

As China continues to transition from a source of cheap labor to a more skilled workforce, the number of college graduates has been skyrocketing. The government expects that by 2020 there will be 195 million college graduates in the Chinese workforce, more than the total projected U.S. workforce at the time of 167 million.

Already China has surpassed the U.S. in college graduate production; more than seven million Chinese graduated in 2014, up from less than 500,000 in 1999 and more than twice the total of the U.S.

535,313

Chinese patent applications filed in 2012

There were more than half a million patent applications filed in China in 2012, the most recent year for which World Bank data is available. China’s most important economic resource historically has perhaps been the abundant cheap labor upon which many global corporations have capitalized. But it is quickly becoming a center of many more modern, tech-heavy industries as well.

To put this number in perspective, it represents:

• 82% increase over two years prior;
• 96% of the total for Japan and U.S. combined;
• 12.4x the total for the other 3 BRIC nations combined.

It is unlikely that China’s economic rise will be continually smooth or uninterrupted; the transition from emerging market to global economic powerhouse will be a gradual process. While there are significant uncertainties in the short term, it is difficult to deny the long-term potential of an economy driven by such a massive population and a rising middle class.

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Michael Johnston is senior analyst for All Emerging Markets, and also serves as COO of parent company Poseidon Financial. His investment expertise has been featured in The Wall Street Journal, Barron’s, and USA Today, among other publications. He resides in Chicago.

Courtesy of All Emerging Markets