Many people believe that the China stock market is rigged and the central government will throw as much money at their stock market as necessary to keep it from crashing.
Whether this is true or not, it might be instructive to know who owns the China stock market. The chart below contains the answer to this question. There are some surprises, at least to me.
What does this chart reveal?
First, I was surprised to see that Foreign investors only own 5.4% of the China stock market. I would have thought that this number would be closer to 20%.
Second, retail Chinese investors own the largest share of the China stock market - 35%. In the U.S. retail investors own about 8% of the stock market.
Third, in China high net worth individuals own 10% of the market, while in the U.S. they own 55%. The rest of the numbers are similar, but these three classes of investors own widely different shares of their home stock market.
Why does this matter?
It matters because China now has the largest economy in the world, when measured in Purchasing Power Parity. The bigger China gets as an economic power, the more it matters to the U.S. and the rest of the world.
The China stock market is still quite small compared to the U.S. or Europe or Japan. But it's growing like a weed and it adds fuel to the mission at hand for the Chinese leadership, which is to overtake the U.S. as the global superpower. It may be a long way away, but things look like they're headed in that direction.
What happens next?
I believe that China's end game is to become the world's largest economy, which they have already accomplished in terms of PPP. The next goal would be to displace the U.S. dollar as the world's reserve currency. For them to do that, they would have to have enough currency reserves to handle global currency demands. They are very far away from this, but they are getting closer each year.
Can you imagine a world economy that is denominated in Renminbi instead of USD? To me it's a sobering thought. Oil, Gold, Commodities, and other staples of the global economy would be priced in China dollars. The worst-case scenario that I can imagine would be that the U.S. could no longer print money to pay their extraordinarily large debt obligations to the rest of the world. The U.S. would be beholden to the value and interest rates set by the Chinese, for the first time since World War I. I, for one, don't like to think about that prospect.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.