If you haven't been living in a cocoon, you probably know that China is likely to become the next economic superpower in the world. In the past few years, the country's economy has grown at a rate close to 10 percent, and this isn't likely to change.
If you know how big the country's economic engine is, you'll also know that China is a place where you need to have some money invested. Of course, you also need to fully understand the risks that come with investing in a country where the communist government has tight control over the economy and the way businesses are run.
In China, the idea of an open economy is debatable because the government could step in at any time to further its political goals. Still, the risk is probably worth it because there are so many growth opportunities in the country for both multinational companies and investors who want to spread their money around the world. As long as the Chinese government is willing, this part of the world will be the next big area of economic growth.
The Development Research Center of China's State Council just put out a report that says the country's GDP will grow by about 8% per year from 2006 to 2010. Based on the numbers we've seen, this seems like a good estimate.
Based on prices in 2000, the report says that China's GDP will reach $2.3 trillion by 2010, the end of the current five-year period.
In the next 10 years, from 2010 to 2020, the report predicts that the annual GDP growth rate will drop to about 7%, which is still a good number.
For investors, the estimated numbers are mind-boggling, but as China gets richer, it will need to be able to handle any inflationary or growth-related problems that come up in the future.
The country's middle class, which has several hundred million people, is growing quickly as people move from the countryside to the cities to find ways to make more money.
As Chinese people make more money, they want to buy more things. This, in turn, drives up the demand for goods and services from both inside and outside the country. That's why so many companies are going to China to look for growth opportunities.
In the end, you have to go to China at some point. In future commentaries, I will look at some of the most important Chinese stocks that are traded in the U.S. as American Depository Receipts (ADRs).
