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International Investing: China

Country Overview: China has changed over the last quarter-century from a largely planned system closed to international trade to a major player in the global economy.

Collectivized agriculture was phased out, autonomy for state businesses increased, and a diversified banking system and stock markets introduced.

GDP has increased more than tenfold since 1978. Economic development has been faster in some regions than in others, and there are large regional disparities in per-capita income. Major challenges for the government have included sustaining adequate job growth for tens of millions of workers laid off from state-owned enterprises, reducing corruption and other economic crimes, and containing environmental damage. The "one child" policy maintained in China for many years has given the country one of the world's most rapidly-aging populations.

Despite a currency revaluation in 2006, China has the largest current account surplus in the world, and is the target of persistent demands for further currency reforms.

What to Watch: London's Global Financial Centres index ranks Hong Kong as the third leading financial center in the world behind New York and London, thanks to a slew of mega listings by Chinese companies.

But the emergence of Shanghai has raised concerns whether Hong Kong can retain that position for long.

The city was host to the world's largest IPO late last year when ICBC chose to list, raising $19 billion just in Hong Kong. PriceWaterhouse Coopers expects the mainland to raise more than $52 billion this year, double that of Hong Kong.

Meanwhile, Hong Kong knows it can't put all its eggs in one basket and has been actively pitching companies beyond China. The exchange has created depository receipts and is even considering allowing dual listings.

This year, Hong Kong hopes to make up for the lack of mega listings through sheer volume -- 50 IPOs so far this year in the territory with about 30 more waiting in line.

Meanwhile, in Shanghai, residents are feeling the effect of becoming a global player. Consumer price inflation hit 6.5 percent in August -- an 11-year high. While interest rates are still low at 3.7 percent, money in the bank is not as safe as that in housing – prices there jumped 8.2 percent in the month of August.

Many people here are turning to stocks and mutual funds for investing, and China's benchmark index has doubled this year as 45 million new investors rushed into the stock market in the first eight months of the year.

There's been explosive growth in the mutual funds industry as well. In the first half of 2007, assets under management more than doubled to $240 billion US.

Now, China's investment appetite is turning global -- the first mutual fund to focus on overseas stocks was sold out in a matter of hours, raising $4 billion US. And many more are in the pipeline.

China

2000
2006
Population 1.3 billion 1.3 billion
Economy
GNI, Atlas method (current US$) 1.2 trillion 2.6 trillion
GNI per capita, Atlas method (current US$) 930.0 2,010.0
GDP (current US$) 1.2 trillion 2.7 trillion
GDP growth (annual %) 8.4 10.7
Inflation, GDP deflator (annual%) 2.1 2.9
Agriculture, value added (% of GDP) 14.8 11.9
Industry, value added (% of GDP) 45.9 47.0
Services, etc., value added (% of GDP) 39.3 41.1
Exports of goods and services (% of GDP) 23.3 36.8
Imports of goods and services (% of GDP) 20.9 32.9
Gross capital formation (% of GDP) 35.1 40.7
Revenue, excluding grants (% of GDP) 7.1 7.1
States and Markets
Time required to start a business (days) N/A 35
Market capitalization of listed companies (% of GDP) 48.5 90.9
Military expenditure (% of GDP) 1.8 N/A
Fixed line and mobile phone subscribers (per 1,000 people) 182.2 N/A
Internet users (per 1,000 people) 17.8 N/A
High-technology exports (% of manufactured exports) 18.6 N/A
Global Links
Merchandise trade (% of GDP) 39.6 66.0
Net barter terms of trade (2000 = 100) 100.0 N/A
Foreign direct investment, net inflows (BoP, current US$) 38.4 billion N/A
Long-term debt (DOD, current US$) 132.6 billion N/A
Total debt service (% of exports of goods, services and income) 9.3 N/A
Official development assistance and official aid (current US$) 1.7 billion N/A
Workers' remittances and compensation of employees, received (US$) 8.6 billion 12.6 billion
Source: World Development Indicators database, April 2007