Absolute growth

Ultimately, when managing a company, the absolute growth of a market is the most useful figure in evaluating how much more business can be generated in the future. From this business point of view, it is striking to note that the Chinese market is actually growing faster than it ever has.

Even though China is projected to grow by only 7.2 percent in 2015, it will likely add more GDP in US dollar terms than it did in each of years 2012-14, when GDP growth was higher. Indeed, should China sustain constant percentage growth rates, its GDP would increase exponentially.

As it stands, however, even with slowing percentage growth, China’s GDP will carry on accelerating, though not exponentially. Ultimately, it is this continuous acceleration in absolute GDP growth that has an impact on businesses potential.

Between 2011 and 2015, China is expected to add more than US$5 trillion to its GDP, compared with US$4.7 trillion in the first decade of the new millennium. In terms of business opportunities and in US dollar terms, this means that China is growing, on average, twice as fast today as it did in the previous decade.

By adding about US$1 trillion more per year to its GDP, China has by far the greatest business growth potential in the world.

In 2013 alone, business opportunities in China were twice as large as the in the US, which is the second-biggest growth market in absolute terms.

This acceleration in business potential was confirmed by the initial results of a survey that we will be co-releasing in a month or two. It will show that sales, profits and worldwide shares of sales for foreign companies in China grew faster in 2013 than in 2012 and are generally expected to grow even higher in 2014.

What are implications for businesses can we draw and how can we benefit from these trends?

The first conclusion we reach is that international companies may not be ambitious enough in China. If denominated in US dollar terms, business in China should have grown by 13.4 percent only to keep up with market growth, without gaining any market share. This figure is obtained by taking 7.7 percent growth, plus 2.7 percent inflation, plus 3 percent currency appreciation. By comparison, business in the US would have had to grow by only 3.4 percent, or 1.9 percent plus 1.5 percent inflation to keep up with US market growth.

For those measuring China’s GDP in euros or Swiss francs, there is a 2-3 percent difference that must be accounted for, which would bring average market growth in China to 11 percent.

In 2014, the minimum rate of business growth necessary to keep up with China’s growing market will stand at approximately 11.3 percent in US dollar terms. This figure takes into account an expected inflation rate of 3.5 percent and a steady US dollar-Chinese yuan exchange rate.