About Chinese Investments

Investing in China is relatively easy, but making money on those investments is not. In the emerging, risky and regulation-heavy Chinese market, it can be very difficult for foreigners without extensive experience in the corporate environment there to see consistent returns on investment. Investing directly in the Chinese stock market is extraordinarily regulated for foreigners.

Significance

Fortunately, many major Chinese companies are cross-listed on international exchanges. In most cases, this is a preferable investment method, as investing directly in the Chinese market would be prohibitively expensive due to currency exchange issues, the illegality of foreign investment into the best quality Chinese companies and the challenge involved in researching them without knowledge of the Chinese language.

Function

In China, foreign investors are restricted to B-share stocks, while nationals get access to A-shares. A-share companies are generally those that have been around for longer, have a higher market capitalization and are more likely to give back consistent returns. This and other factors like Chinese taxation make it difficult for the typical individual investor to realize many gains investing directly into Chinese exchanges.

Features

Luckily, there are many available alternatives. Investing in mutual funds that aggregate Chinese stocks is one great way to put money into Chinese business. Another great option is investing in Exchange Traded Funds (ETFs) or inverse ETFs indexed to Chinese exchanges like the Xinhua China 25. These funds have management fees that may eat into profits, but they are relatively good choices so long as they are competently run.

Warning

The Chinese stock market is highly speculative relative to those of more established countries. The Shanghai Stock Exchange, for example, was only founded in 1990. The Chinese government is highly active and politically motivated, and has been known to shutter companies for political offenses, confiscating assets and leaving shareholders with nothing in compensation. Even when going through a mutual fund, it is risky to invest in China, and will likely remain that way for the decades to come.

Benefits

The sheer size and regular growth of the Chinese market, however, make it attractive for investment despite all of the aforementioned risks and downsides. While it can be difficult to conduct research for foreigners, there are increasing numbers of foreign-language publications such as the China Business Review that cater to outside investors. The continual growth experienced by China over the past two decades makes it an attractive environment for investors looking to hop onto start-ups that are rich in potential as well as established industrial giants.

Resources

• China Stock Reports website
• China Business Review
• China Stock Digest