How to Invest in China

How to Invest in China

Investing in China

From 1979 to 2017, China experienced what the World Bank described as “the fastest sustained expansion by a major economy in history” (1). Since the pandemic, COVID-19 shutdowns of factories and cities have slowed China’s growth, but in 2021 China’s GDP nevertheless expanded by 8.1 percent, reaching $18 trillion—surpassing that of the European Union, at $15.73 trillion (2).

A bumpy year followed, but even in 2022, China’s robust GDP of $17.4 trillion showcases the country’s resiliency (3). And the future is China: its economy is predicted to overtake the US as the world’s largest economy by 2030 (4).

Driven by technology and innovation, and service-focused, China’s economy has a growing, increasingly urbanized middle class who are eager consumers. Increased consumer demand and a significant shift away from export reliance have been important to China’s momentum.

That said, China has a strong, well-educated workforce that will power the technology and advanced manufacturing sectors, which will continue to be a core part of its economic growth.

The diversity of China’s industries had a role in sustaining its growth. The fastest-growing Chinese industries from the past year are wide ranging, including cafes and bars (from reopening urban centers as well as higher income), mattress manufacturing (rooted in booming hospitality and housing markets), automobile manufacturing including alternative-fueled cars, in-home care (reflecting a large and growing senior population), energy-efficiency consultants, optical fiber and cable manufacturing, and traditional medicine and hospitals (5).

Concerns over China’s security and privacy issues, regulations and tariffs, and human rights issues are challenges that each investor needs to negotiate according to their values. But China’s presence in the world’s markets hasn’t diminished since the 2019 pandemic. In fact, its manufacturing, number of consumers and workers, and influential innovations are positioning China to be a dominant force for years to come.

Why Invest in China?

In 2021, the Chinese economy made up 18.56 percent of the world’s GDP (6); for that and many other reasons, China has been called an “opportunity too big to ignore.” Investing options include public Chinese companies or companies that do business in China. For investors looking for growth potential or to diversify in global or emerging markets there are key attractions (7):

• Vast resources. One reason China is attractive to businesses is its large, educated workforce. This skilled population is complemented by a breadth of infrastructure and resources that can adapt to specialized tech needs. If a company needs to scale up to meet demand or is looking for a vast, engaged consumer market, they might turn to opportunities in China.

• Innovation that moves ahead of the curve. The scale of China’s tech innovation has moved light-years beyond “copycat” products into influencer territory. Case in point: If you’ve been living in a cave without cell service since 2012, you might not have heard of TikTok, owned by the Chinese company Bytedance (and sorry, you can’t buy shares in TikTok or Bytedance until the company goes public).

  It’s hard to grasp its reach, but try this: in 2022, globally there were one billion active users of this video-sharing app, with eight more users joining them every second (8). Privacy, security, and censorship issues may dent some of TikTok’s growth prospects, but its algorithm’s viral success will influence business models and strategies for years to come.

• Privately owned market leaders. Despite the fact that the majority of Chinese companies on the Fortune Global 500 are state-owned, many of its economic leaders are privately owned. For example, COVID-19-related buying benefited Alibaba (BABA) to the tune of a 26 percent growth rate in its e-commerce business (9). 2022’s strict lockdowns and mass testing in China weighed heavily on tech companies’ shares, but a reopening has jumpstarted Alibaba’s revenue, which is predicted to accelerate in 2023.

This mixture of publicly and privately owned entities positions China against economic downturns; rather than directing money to citizens and businesses like the U.S. stimulus, the Chinese government intervened directly in the labor market by increasing employment in state-owned enterprises (SOEs).

Finding Investments

If you’re looking to invest in the Chinese market, it can be a challenge to easily find businesses that are open to foreign investors or that are affordable for the average investor. Here are 2 of the many ways you can search on Magnifi to find Chinese investments right for you:

• Search tip #1: If you want to invest in a Chinese-based privately owned company, you can first check its current share price and risk and returns.

  For example, on Magnifi the search “invest in China” will bring up the BABA stock. Click or tap on the name to see the price of the share and useful information, like its returns and risk potential, compared to its industry.

  That search also brings up mutual funds and ETFs that track the performance of Chinese-based firms (10). These funds make it relatively easy to invest in a broad range of Chinese companies.

• Search tip #2: If you want a piece of TikTok, you may have to wait till Bytedance goes public. But there are other ways to invest in China and social media.

  A search for “how to invest in China and social media” brings up mutual funds and ETFs that track the performance indexes of some Chinese companies and companies tied to China in the internet and social media industries. Who knows? Perhaps one of them will be the next TikTok!

Ultimately, whether you want to invest directly in a Chinese-based company, are looking at riding the wave of EV manufacturing in China or instead choose to invest domestically, you can’t ignore the presence of the Chinese market. China’s economy looks to be on a trajectory for long-term growth—which makes it a worthy investment opportunity to consider now.

How to Invest in China

There are a number of ways for investors to incorporate exposure to China through portfolio analysis. Investors could look for Chinese-based companies or mutual funds or ETFs that include assets related to Chinese industries, like EVs or social media companies.

A search on your AI investing app, Magnifi, lists a variety of avenues to invest in China, as well as ways to learn more about this exciting investment opportunity.

• Invest in China
• Invest in China and clean energy
• Invest in China and technology

References:

1. “China’s Economic Rise: History, Trends, Challenges, and Implications for the United States,” July 12, 2006 - June 25, 2019, EveryCRSReport.com,, https://www.everycrsreport.com/reports/RL33534.html.
2. Chipman Koty, Alexander, “Top 3 Reasons to Invest in China in 2022,” March 4, 2022, China Briefing, https://www.china-briefing.com/news/top-3-reasons-to-invest-in-china-in-2022/ and “27-member bloc’s GDP falls behind that of China in 2021, EU data shows,” January 31, 2022, Global Times, https://www.globaltimes.cn/page/202202/1250282.shtml.
3. Adam, Shamim, “Xi’s China GDP Estimate Shows Economy Grew at Least 4.4% in 2022,” December 31, 2022, Bloomberg, https://www.bloomberg.com/news/articles/2022-12-31/xi-s-china-gdp-estimate-shows-economy-grew-at-least-4-4-in-2022?leadSource=uverify%20wall.
4. Chipman Koty, “Top 3 Reasons to Invest in China in 2022.”
5. “Fastest Growing Industries in China by Revenue Growth (%) in 2023,” accessed January 11, 2023, IBISWorld, https://www.ibisworld.com/china/industry-trends/fastest-growing-industries/.
6. “China's share of global gross domestic product (GDP) adjusted for purchasing-power-parity (PPP) from 1980 to 2021 with forecasts until 2027,” accessed January 11, 2023, Statistica.com, https://www.statista.com/statistics/270439/chinas-share-of-global-gross-domestic-product-gdp/.
7. Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.
8. Haegele, Bob, “How to Invest in TikTok Stock in [2022],” June 18, 2022, yahoo!money, https://money.yahoo.com/invest-tiktok-stock-2022-184434932.html.
9. Shreve, Ken, “Alibaba Stock Looks Like A New Stock Market Leader, But Is BABA Stock A Buy Now?,” January 10, 2023, Investor’s Business Daily, https://www.investors.com/research/alibaba-stock-buy-now/.
10. Mutual Funds and Exchange Traded Funds (ETF’s) are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.