CCR2 International Credit Management
While relying on 150 large firms excludes small businesses and unlisted firms, the new methodology can capture growth variations across industries and thus shed light on the important question of how the structure of the Chinese economy is changing
more informed understanding of short-term economic developments in China. “One interpretation of this result is that
the statistical methodologies used in China result in a degree of smoothing between quarters and years in the reported GDP numbers.”
The real economy The study’s findings are significant to asset prices and the real economy. Financial markets tend to react strongly to even small changes in the quarter-by-quarter or year- by-year GDP growth reported by China’s National Bureau of Statistics. The study suggests that investors should be
more cautious in interpreting these official statistics, and that it would be prudent to also look at alternative measurements. Compound annual growth rate (CAGR),
as measured by the China-150 Growth Index, was closely aligned with the official GDP figures in 2011-2016: revenue growth of 10.3% was exactly the same as the
April 2018
official GDP figures of 10.3% (year-on-year variations averaged less than 0.1%), while gross margin (revenue less cost of goods sold) at 10.8% was 0.5% higher than the official GDP rate. The study’s new revenue and gross margin
indices also closely tracked official numbers for US GDP growth 2011-2016 when back tested on American data, reinforcing their usefulness as a benchmark. While relying on 150 large firms excludes
small businesses and unlisted firms, the new methodology can capture growth variations across industries and thus shed light on the important question of how the structure of the Chinese economy is changing. Retail, technology, healthcare, and real
estate were the fastest-growing sectors; banking and insurance showed above- average, though volatile, growth; while slightly below-average growth was found in utilities, construction, and food and beverage. Chinese retail grew at almost six times the speed of the USA between 2011 and 2016.
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These results point to the rapid shift
towards services as the prime driver of growth in China, as well as much more rapid adaption of e-business and mobile technologies in retail and financial services compared with the USA.
Total revenue The study notes the market capitalisation of all listed companies equated to 65% of China’s GDP in 2016. The total revenue of the 150 companies
selected for the study represent 23% of Chinese GDP, underlining the significance of the sample. The 150 companies (which exclude five
big oil and gas firms because their inclusion would have overstated the energy sector’s importance to the overall Chinese economy) all publish annual reports, issue quarterly results announcements, each had revenues of at least RMB10bn (about $1.5bn) in 2015 and 66% were audited by one of the Big-Four accounting firms. CCR2
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