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Embracing China's economic shift through the total China concept


The China equity market landscape has changed dramatically since FTSE Russell became the first international index provider to launch mainland indexes back in 2001.

  • The number of Chinese listings domestically and abroad has grown rapidly as has its share of emerging market equity portfolios.
  • The problem for international investors is that historically the majority of them have only been able to access China via Hong Kong and overseas listings.
  • As the mainland China equity market continues to open to overseas investment the ability for international investors to gain access to this large and growing market has become easier.
  • Therefore, the questions for international investors are whether they need to include China A shares in their existing China portfolios, and what to do with their existing holdings of overseas China?
  • This paper highlights that to gain a complete exposure to China equities investors need to diversify across all the different China shares classes.
  • The total China concept provides a mechanism to gain access to Chinese listed equities globally and to have diversified sector representation as China continues its development path towards value added manufacturing, and a consumer and service-based economy.
     

China’s giant steps: addressing the current phase of its economic development

In 2010, China set a target to double GDP in the decade to 2020. As shown in Exhibit 1, from 2010 to 2016, the GDP of China expanded from USD 6.1 to 11.2 trillion. It is now the second largest economy in the world after the US on a nominal GDP basis.1 The rapid expansion has been driven by export orientated policies. For decades the country benefited as the manufacturing hub of the developed world as global companies took advantage of lower labor costs. The build-up of production capacity led to significant trade growth and resulted in one of the largest worker migration transfers—from the country side to the cities—in recent history.

Read about the untapped domestic Chinese equity market, the shift of China’s economic, the changes in its consumer’s habits and discretionary spending, budget increases for innovation, China share classes, and much more.