The China economy

Since 1978, China has had a unique economic model: a socialist market economy with state control of strategic sectors (banking, energy, telecom) and private ownership in the consumer and technology sector.

GDP grew on average 9,5 percent per year in 1978–2010 but has slowed to 5–6 percent in the 2020s. GDP in 2023 was 17 trillion dollars, about 70 percent of US GDP.

China's transition from investment-driven to consumption-driven growth is the biggest structural change. Previously, growth was driven by property construction (25 percent of GDP in 2020) and infrastructure investments. After Evergrande's collapse in 2021, property investments fall by 10 percent per year, and the government tries to stimulate consumption instead.

This transition directly affects Swedish companies with property exposure.

China's political system affects the economy more directly than Western systems. The Communist Party's five-year plans set overall targets (like the 14th five-year plan of 2021–2025 on 'dual circulation' — domestic consumption plus exports).

State-owned companies make up 30 percent of GDP and get directives on investments, hiring and pricing.

For Swedish investors, this means that the Chinese economy reacts faster to political decisions than market-driven economies. When Xi Jinping announced 'common prosperity' in 2021 and struck at technology giants (Alibaba, Tencent), their valuations fell 50 percent in three months.

Investors who follow Chinese politics have an edge, but it requires specific competence in interpreting party decisions.

China's National Bureau of Statistics (NBS) publishes quarterly GDP, monthly industrial production, retail sales and property data. Investors should focus on four figures: GDP growth (target 5 percent in 2024), property investments (falling 10 percent per year in 2023), industrial production (target 5 percent) and consumer sales (target 5 percent).

When all four miss the targets, it indicates deeper structural problems.

A more leading variable is the purchasing managers' index (PMI) that the NBS publishes monthly. A PMI above 50 indicates expansion, below 50 contraction. The Caixin Manufacturing PMI (published privately) is often more reliable than the NBS's official PMI because it covers smaller, private companies.

When the Caixin PMI falls below 48, it indicates harder problems than the official statistics show.

A third technique is to follow satellite data and alternative indicators. China Beige Book International publishes quarterly independent company surveys that give a more realistic picture than official statistics. Satellite images of factory activity (via Rhodium Group and SpaceKnow) give objective data on industrial production.

These alternative sources are important because Chinese official statistics are often questioned for being politically adjusted.