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China: Country and Foreign Investment

Executive Summary

This page was last updated on 1 July 2019.

As is well known, China is the most populous nation in the world; estimates for June 2019 put the population at 1.42 billion. Due to the 'one child policy' (recently relaxed), however, the population is only growing by 0.5% a year, a comparatively low figure. Perhaps surprisingly, China is only the fourth largest country by area, being smaller than Russia, Canada and the USA.

Although China is densely populated overall, the population is unevenly distributed. The vast majority live in the eastern half of the country, where Chinese peoples have lived for millennia. The Western half is largely made up of mountain and desert, and is largely a relic of the Chinese Empire rather than China proper.

In economic terms,  China is likely to become the world's largest economic power and remain so for some time. However, the increasing authoritarianism and woeful corruption of those in power may well be a confounding factor.

In 2018, the IMF listed China's GDP at purchasing power parity as US$25.3 trillion, first in the world. If nominal GDP figures are used, China has about two-thirds of the US figure. This is because China has been growing at from 5% to 10% a year for the past few years, while moribund Western nations are stuck in the 1-3% range.

Of course, in GDP per capita terms, the picture is much less rosy for China, with a 2018 level of US$18,100, less than a third of the US figure. On the other hand, the low wage rates (and other costs) implied by this figure are a positive advantage for China, which has an enormous competitive advantage over most developed countries.

This advantage is accentuated by what US and other politicians and economists say is a secular undervaluation of China's currency, the yuan or renminbi. It is this that accounts for the difference between 'nominal' and 'PPP' GDP figures. China disagrees, but is very gradually allowing the renminbi to trade up. The currency remains non-convertible in most respects, although a number of capital market instruments, particularly in Hong Kong, are chipping away at this. It can be expected that the yuan will become convertible within five years, and the difference between nominal and PPP valuations will probably unwind over the same period.

 

 

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