China is evolving into a consumer economy with ample opportunities for international investors to gain exposure to rapid growth markets and an expanding middle class.
Economy of China
China had the largest economy in the world for most of the past two thousand years, during which it has seen cycles of prosperity and decline. Since economic reforms began in 1978, China has developed into a highly diversified economy and one of the most consequential players in international trade. Major sectors of competitive strength include manufacturing, retail, mining, steel, textiles, automobiles, energy generation, green energy, banking, electronics, telecommunications, real estate, e-commerce, and tourism. China has three out of the ten largest stock exchanges in the world —Shanghai, Hong Kong and Shenzhen—that together have a market capitalization of over $15.9 trillion, as of October 2020. China has four (Shanghai, Hong Kong, Beijing, and Shenzhen) out of the world’s top ten most competitive financial centers, which is more than any country in the 2020 Global Financial Centres Index.
China has been the world’s No. 1 manufacturer since 2010
China has been the world’s No. 1 manufacturer since 2010, after overtaking the US, which had been No. 1 for the previous hundred years. China has also been No. 2 in high-tech manufacturing since 2012, according to US National Science Foundation. China is the second largest retail market in the world, next to the United States. China leads the world in e-commerce, accounting for 40% of the global market share in 2016 and more than 50% of the global market share in 2019. China is the world’s leader in electric vehicles, manufacturing and buying half of all the plug-in electric cars (BEV and PHEV) in the world in 2018. China had 174 GW of installed solar capacity by the end of 2018, which amounts to more than 40% of the global solar capacity. As one of the world’s foremost infrastructural giants, China has the world’s largest bullet train network, the most supertall skyscrapers in the world, and most recently, has initiated the most extensive transcontinental infrastructure investment project in modern history.
Chinese Economic Indicators
Chinese GDP Growth Rate
In China, the growth rate in GDP measures the change in the seasonally adjusted value of the goods and services produced by the Chinese economy during the quarter. As China’s traditional growth engines of manufacturing and construction are slowing down, services have emerged as the new driver. In the last few quarters strength in services and consumption helped to offset weaker manufacturing and exports.
Chinese Interest Rate
The People’s Bank of China (PBOC) on August 17th, 2019, designated the Loan Prime Rate (LPR) the new lending benchmark for new bank loans to households and businesses, replacing the central bank’s benchmark one-year lending rate. The rate is based on a weighted average of lending rates from 18 commercial banks, which will submit their LPR quotations, based on what they have bid for PBOC liquidity in open market operations, to the national interbank funding center before 9am CST on the 20th of every month.
Chinese Inflation Rate
In China, the most important components of the CPI basket are Food (31.8 percent of total weight) and Residence (17.2 percent). Recreation, Education and Culture Articles account for 13.8 percent; Transportation and Communication for 10 percent, Healthcare and Personal Articles for 9.6 percent, Clothing for 8.5 percent; Households Facilities, Articles and Services for 5.6 percent; Tobacco, Liquor and Articles for the remaining 3.5 percent. The CPI basket is reviewed every five years on the basis of household surveys. Revisions reflect new spending patterns and economic development, according to the National Bureau of Statistics. Last revision took place in 2011.
Chinese Unemployment Rate
In China, Urban Surveyed Unemployment Rate is calculated by a sample survey, which refers to the ratio of urban unemployed population to the sum of the employed population and the unemployed population.
Chinese Government Debt to GDP
China recorded a government debt equivalent to 50.50 percent of the country’s Gross Domestic Product in 2018
Chinese Balance of Trade
Since 1995, China has been recording consistent trade surpluses which from 2004 to 2009 has increased 10 times. In 2019, China posted a trade surplus of USD 421.9 billion, the biggest since 2016, as exports increased 0.5 percent and imports fell 2.7 percent on weak domestic demand and trade tensions with the US. The biggest trade surpluses were recorded with the US, Hong Kong, the EU – in particular the Netherlands, the UK, Poland, Spain, Italy and Belgium – India, Vietnam, the Philippines, Singapore, the UAE, Pakistan, Turkey and Indonesia. The largest deficits were recorded with Taiwan, Australia, South Korea, Brazil, Saudi Arabia, Japan, Germany, Switzerland, Malaysia, Oman, Chile and Russia.
Chinese Currency Yuan
The USDCNY exchange rate is a reference rate not used in actual currency trading. When investors or entities want to exchange dollars for the Chinese currency, they do so using the USDCNH exchange rate set in Hong Kong. The People’s Bank of China sets the yuan’s mid-point rate and the onshore yuan (USDCNY) is allowed to trade 2% higher or lower than the PBoC’s central reference rate. The offshore yuan (USDCNH) which trades outside the mainland is not controlled. The USDCNY and the USDCNH are not very different and usually trade less than a few cents apart.
Chinese Stock Market
The Shanghai SE Composite is a major stock market index which tracks the performance of all A-shares and B-shares listed on the Shanghai Stock Exchange, in China. It is a capitalization-weighted index. The SSE Composite Index has a base value of CNY100 as of December 19, 1990.
China Ease of Doing Business
China is ranked 31 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. The rank of China improved to 31 in 2019 from 46 in 2018. The Ease of doing business index ranks countries against each other based on how the regulatory environment is conducive to business operationstronger protections of property rights. Economies with a high rank (1 to 20) have simpler and more friendly regulations for businesses.
China Business Confidence
The official NBS Manufacturing PMI for China stood at 51.4 in October 2020, little-changed from a six-month high of 51.5 in the previous month and compared with market expectations of 51.3. The latest reading pointed to the eighth straight month of growth in factory activity, amid ongoing recovery in the economy from the COVID-19 shock. There were rises in output (53.9 vs 54.0 in September), new orders (52.8 , the same as in September), and export sales (51.0 vs 50.8). Meanwhile, employment fell at a steeper pace (49.3 vs 49.6), while suppliers’ delivery time was almost stable (50.6 vs 50.7). On the price front, input costs went up at a faster pace (58.8 vs 58.5), as well as output charges (53.2 vs 52.5). Looking ahead, business sentiment strengthened in October (59.3 vs 58.7).
In China, the NBS Manufacturing Purchasing Manager Index measures the performance of the manufacturing sector and is derived from a survey of more large-scale, state-owned companies. The Manufacturing Purchasing Managers Index is based on five individual indexes with the following weights: New Orders (30 percent), Output (25 percent), Employment (20 percent), Suppliers’ Delivery Times (15 percent) and Stock of Items Purchased (10 percent), with the Delivery Times index inverted so that it moves in a comparable direction. A reading above 50 indicates an expansion of the manufacturing sector compared to the previous month; below 50 represents a contraction; while 50 indicates no change.
China Consumer Confidence
Consumer Confidence in China increased to 120.50 points in September from 116.40 points in August of 2020.
In China, the consumer confidence index is based on a survey of 700 individuals over 15 years old from 20 cities all over the country. This composite index covers the consumer expectation and consumer satisfaction index, thus measures the consumers’ degree of satisfaction about the current economic situation and expectation on the future economic trend. The Index measures consumer confidence on a scale of 0 to 200, where 200 indicate extreme optimism, 0 extreme pessimism and 100 neutrality.
China Corruption Rank
China is the 80 least corrupt nation out of 180 countries, according to the 2019 Corruption Perceptions Index reported by Transparency International. The Corruption Perceptions Index ranks countries and territories based on how corrupt their public sector is perceived to be. A country or territory’s rank indicates its position relative to the other countries and territories in the index.
Chinese Credit Rating
Standard & Poor’s credit rating for China stands at A+ with stable outlook. Moody’s credit rating for China was last set at A1 with stable outlook. Fitch’s credit rating for China was last reported at A+ with stable outlook. DBRS’s credit rating for China is A (high) with negative outlook. In general, a credit rating is used by sovereign wealth funds, pension funds and other investors to gauge the credit worthiness of China thus having a big impact on the country’s borrowing costs.
Taxation in China
Taxes provide the most important revenue source for the Government of the People’s Republic of China. Tax is a key component of macro-economic policy, and greatly affects China’s economic and social development. With the changes made since the 1994 tax reform, China has sought to set up a streamlined tax system geared to a socialist market economy.
China’s tax revenue came to 11.05 trillion yuan (1.8 trillion U.S. dollars) in 2013, up 9.8 percent over 2012. The 2017 World Bank “Doing Business” rankings estimated that China’s total tax rate for corporations was 68% as a percentage of profits through direct and indirect tax. As a percentage of GDP, according to the State Administration of Taxation, overall tax revenues were 30% in China.
The government agency in charge of tax policy is the Ministry of Finance. For tax collection, it is the State Administration of Taxation.
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