China: The Essentials
China’s rapid development is recognized as one of the most important shifts in the global economy
The country has experienced explosive growth over the last 25 years.
Source: World Bank (Oct 2019)
In brief
- China’s rapid development is recognized as one of the most important shifts in the global economy. As the world’s second largest economy1, China is a major global player and is on a trajectory to rival the US.
- China’s economic surge can be attributed to numerous factors such as large scale capital investment, drastic production growth and increased domestic consumption. However, annual economic growth has not always translated into comparable growth in domestic stock markets. This could change as the country opens up to foreign investment and lowers barriers to entry.
- Despite the size and the growth of the market, China is currently under-owned as foreign investors hold just 3% of the broad market in China2. China will play an increasingly more important role in global markets, making it a potential source for portfolio returns and diversification.
1 Source: World Bank, April 2020.
2 Source: Wind, March 2020.
Investments in China are subject to certain additional risks, particularly regarding the ability to deal in equity securities in China due to issues relating to liquidity and the repatriation of capital.
Political and regulatory frameworks may constrain investment choices. Investors will need to balance the investment case for gaining exposure to China with possible investment restrictions – and may need to consider indirect exposures to China.
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. The investor may not get back the amount originally invested.
China’s Gross Domestic Product (GDP) Growth (US$)
Now the world’s second largest economy, China is a major global player – and is on a trajectory to rival the US.
Source: World Bank (July 2020)
With China’s real annual GDP growth averaging 9.5% through 2018, the World Bank describes the pace of growth as the fastest sustained expansion by a major economy in history.
However, annual economic growth has not always translated into comparable growth in domestic stock markets.
In 2020, China started to lift some of the restrictions on foreign investments. This creates an entirely new investment opportunity – an opportunity that can no longer be ignored.
The China Investment Opportunity
China has the 2nd largest stock and bond markets globally (Source: Bloomberg, March 2020), which are increasingly open and included in global indices. With lowered barriers to entry presenting a vast market opportunity previously unavailable to foreign investors, investment processes still require deliberate views on China’s onshore markets.
Equity Market Capitalization (US$)
China’s A-share market consists of over 3,500 companies, and has a combined market capitalization of over US$9 trillion, making it one of the largest equity markets in the world.
Source: Goldman Sachs, June 2020.
Relative Size of Bond Markets (US$)
Composition of China's GDP Growth (US$)
Chinese consumers spent $4.7 trillion in 2017, up from $3.2 trillion in 20121. Therefore with consumer demand driving China’s economy – this sector is a significant area of focus for investors2.
1 Source: Financial Times, Feb 2019
2 Source: Knoema, Aug 2019
China’s consumer is going to be a key driver of global growth in coming years
Opening Up the Great Wall
China has shown great support for economic globalization, and is already making strides to open its markets to the rest of the world.
Old China vs. New China
China’s economic circumstances present a potentially compelling opportunity, but current investment processes must evolve in order for investors to tap into this market.
Not only is China now more open to investment, it is also the source of new business opportunities – driven by a growing middle class and domestic consumption.
China already has the world’s largest robot market and the government is actively promoting the robotics industry with tax reductions and special R&D funding.
China will inevitably face unprecedented challenges as it proceeds to lead global economic growth.
However, China’s changing economy is creating a new landscape of opportunity for potential portfolio growth, and it may continue to do so for the coming years.
If foreign investors exclude China from their portfolio, they may risk missing out on the explosive potential of the vast market.
In Latin America, for institutional investors and financial intermediaries only (not for public distribution). This material is for educational purposes only and does not constitute investment advice or an offer or solicitation to sell or a solicitation of an offer to buy any shares of any fund or security and it is your responsibility to inform yourself of, and to observe, all applicable laws and regulations of your relevant jurisdiction. If any funds are mentioned or inferred in this material, such funds may not been registered with the securities regulators of Argentina, Brazil, Chile, Colombia, Mexico, Panama, Peru, Uruguay or any other securities regulator in any Latin American country and thus, may not be publicly offered in any such countries. The securities regulators of any country within Latin America have not confirmed the accuracy of any information contained herein. No information discussed herein can be provided to the general public in Latin America. The contents of this material are strictly confidential and must not be passed to any third party. In Argentina, only for use with Qualified Investors under the definition as set by the Comisión Nacional de Valores (CNV). In Brazil, this private offer does not constitute a public offer, and is not registered with the Brazilian Securities and Exchange Commission, for use only with professional investors as such term is defined by the Comissão de Valores Mobiliários. In Colombia, the sale of each fund discussed herein, if any, is addressed to less than one hundred specifically identified investors, and such fund may not be promoted or marketed in Colombia or to Colombian residents unless such promotion and marketing is made in compliance with Decree 2555 of 2010 and other applicable rules and regulations related to the promotion of foreign financial and/or securities related products or services in Colombia. In Chile, the sale of each fund not registered with the CMF began on the date as indicated for such fund as described herein and the sale of such securities is subject to General Rule No. 336 issued by the SVS (now the CMF). The subject matter of this sale may include securities not registered with the CMF; therefore, such securities are not subject to the supervision of the CMF. Since the securities are not registered in Chile, there is no obligation of the issuer to make publicly available information about the securities in Chile. The securities shall not be subject to public offering in Chile unless registered with the relevant registry of the CMF. In Peru, this private offer does not constitute a public offer, and is not registered with the Securities Market Public Registry of the Peruvian Securities Market Commission, for use only with institutional investors as such term is defined by the Superintendencia de Banca, Seguros y AFP. In Uruguay, the Securities are not and will not be registered with the Central Bank of Uruguay. The Securities are not and will not be offered publicly in or from Uruguay and are not and will not be traded on any Uruguayan stock exchange. This offer has not been and will not be announced to the public and offering materials will not be made available to the general public except in circumstances which do not constitute a public offering of securities in Uruguay, in compliance with the requirements of the Uruguayan Securities Market Law (Law Nº 18.627 and Decree 322/011).
©2021 BlackRock, Inc. All Rights Reserved. BLACKROCK and iSHARES are registered trademarks of BlackRock, Inc. All other trademarks are those of their respective owners.
MKTGH0720E-1253738