China is Not a Contender

Over the last couple of decades, China has experienced more growth and development than we've seen in economic history. However, they typically measure growth using the size of their Gross Domestic Product (GDP). That's a crude metric to use for the ability to project your power into the world.

Global GDP Shares - a Historical Perspective
Source: Business Insider

Above is a chart showing global GDP shares from a historical perspective. It is timestamped from 1000 A.D. to the present and represents the country's percentage of the worldwide GDP. Production is based on how many people a country has, but it doesn't tell you about its wealth within industries.


For example, in the 1800s, the United Kingdom's economy grew dramatically, but the size of China's economy dwarfed it. However, at the same time, the Opium Wars occurred, where the U.K. left England and defeated China time and time again. So, when we look at wealth per individual in this example, you can conclude many more resources were devoted to the English than to China.

Productivity of China

Total Factor Productivity at Constant National Prices for China
Source: FRED Economic Data

The graph above looks at how productive people are based on their tools in the economy. So, how effective are individuals in China? Not very productive at $11,000 in GDP, but we can see that their ability to produce products through the nineties and onward was multiplying. This is important because China's debt grows substantially, and we haven't seen any production increases. Up until recently, China has also been expanding its money supply five times the federal reserve rate.


Tech Crackdown

When doing business in China, you're doing business with a communist party with much power over your business. They've shown this in the past with tech crackdowns as they have increased regulation, implemented antitrust fines, banned developments of D.D. (a ride-sharing app), and taken over private education.

Market Trades – China vs. the United States

iShares China Large-Cap ETF
Source: StockCharts

Analyzing how the market has been trading a year to date, you can infer more volatility in the Chinese index. But we see a big run-up in the market in 2021, which since has decoupled from the U.S. market. As a market share, the United States has been significantly outperforming the Chinese market. However, market trades are not the only issue China is dealing with.


Age Ratio

China Age Ratio
Source: TIME

The age ratio graph shows the young population at the bottom, the working people in the middle, and the elderly at the top. One of the big stories on why China grew drastically is because they have a high population and low labor costs. That means that as labor gets more expensive, there will be an issue with age ratios as China's population peaks at 1.44 billion in 2029 before entering an "unstoppable" decline, according to a Chinese Academy of Social Sciences study released in January. Also, take into consideration China's one-child policy. One legacy of the one-child policy is that each generation stands to inherit the wealth of four grandparents and two parents–the flip side of the "4-2-1" phenomenon.


Keep up to date with global GDP shares and more every Wednesday at 3:30 p.m. C.T. And to learn more about this week's Weekly Market Insights, be sure to listen to our recap video on our YouTube channel and SUBSCRIBE!

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Disclosures:


Economic forecasts may not develop as predicted, and there can be no guarantee that strategies promoted will be successful. Therefore, the opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.


All performance references are historical and are no guarantee of future results. In addition, all indices are unmanaged and may not be invested directly.


Securities and advisory services are offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC. All investing involves risk, including possible loss of principal. No strategy assures success or protects against loss.


The opinions in this material do not necessarily reflect the views of LPL Financial.

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