How important is China in world economy?  Well, this seems to be too academic to people on the main street.  However, if you ask them how China influences their daily life, they will not hesitate to tell you how many products they buy everyday were made in China.

Indeed, the economy of China is growing so rapidly that it is challenging the western world in many aspects.  The following facts may be astonishing to those who only conceive that China is a world factory producing cheap products.

  1. Who is the world’s biggest bank by market capitalization? Isn’t it Citibank or Bank of America?  No, it is not.  It is the Industrial & Commercial Bank of China (ICBC).   According to Bloomberg in 2008, of the ten biggest banks in the world in terms of market capitalization, three of them are in China, namely ICBC, China Construction Bank and Bank of China.
  2. China had become the world’s No. 2 auto market in 2006.  In January 2009, its monthly auto sales at 790.000 vehicles also surpassed the US.  Recently, China’s Geely Holding Group is making a deal to buy Volvo brand from Ford Motor at 20 billion dollars.
  3. Casino reports published in August 2009 showed that casinos in the little known city of Macau in China made a half billion dollars in that month alone, more than those in the casino capital of the world, Las Vegas. This very large and impressive sum was more than triple that of the average monthly income of the casinos in Las Vegas
  4. The challenges from China seem to penetrate everywhere. In 2008, a Chinese investment fund manager’s $2.11 million bid for the chance to have lunch with Warren Buffett was the largest ever in a charity auction on eBay and surprised even Buffett himself.

Yet, one of the things that China is still far behind the US is stock market size.  From 1990 to 2000, mainland China’s stock market capitalization in Shanghai and Shenzhen went from under a billion US dollars to one of the top ten stock markets in the world. By the end of 2007, the combined market capitalization of Shanghai Stock Exchange’s $3.67 trillion and Shenzhen Stock Exchange’s $0.78 trillion totaled $4.45 trillion, ahead of Hong Kong’s $2.65 trillion. In global terms, it only ranked behind the US’s combined $19.66 trillion, but was ahead of Japan’s$4.33 trillion, Euronext’s $4.22 trillion and the UK ‘s $3.85 trillion.*  

However, Hong Kong has been handed over to China since 1997.  If we take this into account and combine the Hong Kong and Mainland China’s stock markets together, the total market capitalization would be $7.1 trillion. Within two decades, China may surpass the US.

The above of course are not news at all to large enterprises and banks.  Famous companies like Coca Cola, Proctor & Gamble, Goldman Sachs, Morgan Stanley have already established themselves in China including Hong Kong before the turn of the century making big profits.  Warren Buffet’s Berkshire Hathaway bought 1.3% of PetroChina’s public shares in 2002 and 2003 for $488m and made a $3.5bn profit when the company sold the shares in 2007.

So, what should we people on the main street do to take advantage of the rapid China growth, besides enjoying cheap products made by the factories there? We should, like Warren Buffet, make money from the China stock markets.  When the US economy is crawling out of recession, China’s emerging economy is growing at 8%.  China is the wealthiest country with $1.4 trillion foreign currency reserves. The potentials of the stock markets in China are big enough for us to reap a profit. The only obstacle is that most people do not have good knowledge of the China stock markets and they do not know how to participate.  The objective of China Stock Venture is to provide such knowledge to the investors, so that they will not miss the opportunities amid the China stock market boom.

 

*Sources: Shanghai Stock Exchange Fact Book 2008, Shenzhen Stock Exchange Statistics  CNY1=USD0.12 in December 2007