China's a big place. The world's most populous country and second-largest economy has become a global star, ranking as the hottest emerging market and an investor target for growth, while previous top economies such as the U.S. and Europe have slowly staggered back from the recession. In China, the present is only part of the story: Growth investors have their eyes trained firmly on this nation's massive opportunity in the future.
But just how big is that opportunity? Let's look at five numbers that sum up China's present and future -- and just how this king of the emerging markets shapes up for investors everywhere.
1. 1.4 billion
China boasts around 1.35 billion people under its flag today, but Thomson Reuters estimates that the country's population will only increase to around 1.4 billion by 2050. This is a country looking at a low-growth environment over the next 35 years as it modernizes and urbanizes -- and it signals a major shift on how investors should look at this emerging market.
For decades, China has translated its massive population's burgeoning potential into double-digit annual economic growth. China's slowdown today is coming as the country faces a pair of demographic challenges that will probably prevent China from achieving its old, eye-popping annualized growth rates again. Indeed, many economists project that India will surpass China as the world's most populous country before then.
Beijing's one-child policy has gutted China's youth, leaving a swelling senior population too heavily reliant on a thin corps of young, productive workers. Thomson Reuters projects that more than 20% of China's population will be above age 65 by 2040, with that percentage growing even higher by 2050. Beijing will be forced to allot more attention and funds away from its current resource-oriented strategy -- one that has given rise to massive state-owned corporations, with many of the largest listed on American markets -- and toward services that can care for its elderly and increase the efficiency of its smaller working class.
Combined with a national birth trend that sees more than 120 boys born for every 100 girls -- one of the highest such ratios among top economies in the world -- China will be hard-pressed to bolster its youth population in the next few decades. But while that will hit the country's long-term growth rates, China does have other statistics firmly in its favor.
2. 651.3 million
China had an estimated rural population of 651.3 million people in 2012, according to figures from the World Bank. That's as many people as the populations of the United States, Russia, Japan, and France combined all living in China's rural fringes that, for the most part, haven't caught up with the country's advances in recent decades.
Urbanization has fueled China's growth, as some of the country's largest cities, from Shanghai to Wuhan, have grown into metropolises large and tall enough to rival America and Europe's biggest cities. As more and more Chinese citizens have flocked to the cities, companies both domestic and foreign have tapped into this source of new, cheap labor as a means to reduce manufacturing costs and boost their balance sheets.
But the face of China's urbanization is changing. The cheap "made-in-China" era is coming to an end as labor costs rise and companies look for cheaper means of production. Increasingly, China's leading companies of the future will need to tap into the nation's growing urban population not as a source of labor, but as a massive consumer market unrivaled on a global stage. This strategy's already paid off in a big way for international leaders in the auto industry that have tapped into China's burgeoning auto market as the revenue base of the future.
Yum! Brands (NYSE:YUM) is one company that's already hitched its wagon to China's urban potential, for better or worse: Yum!'s KFC and Pizza Hut brands have thrived in China's market, but a 13% year-over-year same-store sales decline in July hammered the stock recently. Consumer stock investors should expect more hits and misses as companies look to cater to this lucrative market in the years to come.
3. 624 million
Not every industry is still emerging in China, however: The materials industry has come to be dominated by China lately, as exemplified by the 624 million tonnes of steel the nation used in 2011 alone. That was more than six times the amount of steel that the U.S., the second-place nation, used -- and China further beat a second-place America six times over in steel production for 2011.
It's a symbol of how China's investment in its growing nation has fueled its global ambitions -- and also a sign of how those ambitions can be a poison for investors. A caustic mix of oversupply and weak demand in the steel industry has taken down America and Europe's top steelmakers, which have ceded the lead in the industry to China's state-run behemoths, such as Wuhan Iron and Steel.
Wuhan's stock has suffered as a result, but the contagion has plagued former titans of the industry. China's quest to lead materials industries, combined with the general economic slowdown in the wake of the recession, has led to lean times in the materials sector. U.S. Steel (NYSE:X) in particular has seen its stock fall more than 40% over the past two years, and the company's earnings have turned into the red for the past three fiscal years. Beijing has ramped down production across its state-run companies this year as a result of its slowdown, but China's materials giants are still dominating this hard-hit sector.
Aluminum and other industries have fared just as poorly, as oversupply has forced factory closures and worse. It's just one way that bigger isn't always better for investors in China.
Forty-four percent isn't even a majority, but it's a huge number when dealing with a population like China's. That's the percentage of Chinese citizens on the Internet as of the end of June, according to the Chinese Internet Network Information Center. It's an amount that adds up to 591 million people, more than the populations of the U.S. and Indonesia combined and a gain of 27 million Web-linked Chinese citizens since just the end of last year.
Out of all the industries standing to benefit from China's growth, Internet companies may top the list. China's increasing urbanization will only lead to more citizens on the Web, but Beijing's restrictive Internet regulation has prevented many U.S. or other international companies from establishing a strong base in the country.
That's led to a huge opportunity for Chinese search engine king Baidu (NASDAQ:BIDU) and other Chinese companies that have quickly filled the Internet vacuum. Baidu's not only captured a majority of the Chinese search-engine market in its young life, but it's also established itself as a dominant force to come by pushing hard into the mobile market. Mobile revenue made up more than 10% of Baidu's total revenue last quarter, a first for the company. China's mobile market stood at 420 million users at the end of last year, according to the China Internet Network Information Center, and Baidu's opportunity here is enormous.
5. 8.7 million
The auto market has exploded in China, and the 8.7 million passenger cars sold in the first six months of 2013 is a staggering amount. Even more eye-popping: That figure represented a 13.8% year-over-year gain, showing that the Chinese auto market's only getting started in the country's growing urban and middle-class segments.
Just how large is that number? America's auto industry has bounced back well this year, and even that success has rewarded automakers with only 7.8 million American auto sales over the year's first half. And that push came from the built-up demand caused by the advanced age of the average car on U.S. roads. China's appetite for cars should only continue to increase its lead on all rivals.
The world's leading automakers have taken notice. China has become Volkswagen's (OTC:VWAGY) largest market, as the German auto king has soared to take the No. 1 spot there. Consequently, Europe's slump hasn't hit VW anywhere nearly as much as it's affected fellow European companies, as VW's stock has roared higher by more than 45% over the past year.
Even Detroit's finest companies have turned to China for their bread and butter, as China recently became General Motors' (NYSE:GM) top market as well. GM's behind only Volkswagen in China, and strong sales on the other side of the Pacific helped the company's overall sales climb 4% over the first half of the year. For auto investors and China investors alike, the Chinese auto market is one industry you can't afford to take your eyes off.
Making money on China's rise
China's a huge, growing, and valuable market; there's no other way to say it. The country's growth from a minor power in Asia to one of the world's economic powerbrokers has been nothing short of astounding over the past few decades. While some areas in China still need much work to thrive -- the materials sector, the country's weak transportation infrastructure, and the economy's housing struggles are notable examples -- China's in it for the long run.
Investors can't just throw money around in a nation that's still finding its feet, but by sticking to the basics, investing in great, solid companies, and buying for the long term, you might just make the most of China's rise.