Matthews Asia published last week its inaugural issue of Sinology, a publication designed to provide investors with a framework for understanding the Chinese economy and its impact on the global economy. The focus will be on longer-term trends, to help put in context the daily flood of China news. It begins with the first in a series of ‘demystifying China’ reports, to address some of the major misconceptions about the structure of Chinese economy.
According to Andy Rothman, author of the publication, the most fundamental misunderstanding about the Chinese economy is that it is dominated by state-controlled companies. The truth is that most Chinese work for small, private firms.
Private firms account for 82% of urban employment, as well as about 70% of investment and industrial sales.
The Communist Party still controls the financial system and many capital-intensive sectors, but most economic growth comes from entrepreneurial, small private companies, just like in the U.S. and Europe.
Misunderstanding these trends leads to understating the important role of Chinese entrepreneurs, who are the most dynamic part of the economy and drive its growth.
The Communist Party has shrunk significantly the number of SOEs and reduced the number of sectors where they operate, while scaling up the size of the remaining state firms and limiting competition in those sectors from private and foreign-owned companies. While the Party still plays an outsized role, especially through its control of the financial system, it has turned over most of the economy to Chinese entrepreneurs.
You may access the full report through this link
Andy Rothman lived and worked in China for more than 20 years, analyzing the country’s economic and political environment, before joining Matthews Asia in 2014. As Investment Strategist, he has a leading role in shaping and presenting the firm’s thoughts on how China should be viewed at the country, regional and global level.