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State of the nation: What the China opportunity looks like now

By: Sandrine Soubeyran, director research and analytics

Since the introduction of economic reforms some 40 years ago, China’s economy has transformed into a formidable driver of global growth. As the country continues to open its equity market to international investors, they will find a market with a broader set of industries. And also—perhaps surprisingly to some—they will see an increase in focus on the green economy.

China’s economy has expanded rapidly over the past several decades, and has now grown to become the second largest in the world. As our recent research shows, the country owes this growth to decades of policy and economic reforms, as well as the openness of its markets to attract international capital, strong exports, and the substantial urbanization of its society.

China a leader among G20 economies

Furthermore, Financials largely dominated the FTSE China Intl All Cap Inclusion (no Quota) Index a decade ago, and while Financials still remains the most heavily weighted sector, its prominence has fallen while others have grown. As a result, today the index is more diversified across a broader section of industries.

China’s evolving sector landscape is in part being shaped by the global transition to a green economy—in which China has been perhaps an unexpected participant. High levels of air, water and soil pollution has spurred the Chinese government to heavily invest in environmental initiatives. In 2017, Chinese investments accounted for 45% of the global total.

Within a broad green economy universe[1] of some 3,000 companies, China now represents 12% of the market with both the number of green companies and their green revenues exposure outpacing many other nations.

China has become a significant participant in the green economy

An example of this can be found in the renewable energy sector, where China has made significant investments. The country is uniquely placed in that it’s become a global market-leader in the production of solar panels. It’s also rapidly taking market share in the manufacture and adoption of electric vehicles, noted as one of the fastest growing markets for these vehicles in Q1 2017.[2] To limit the country’s waste and reduce costs, the authorities have introduced alternative schemes. For example, recent projects have included setting capacity limits in regions with high waste rates, launching a nationwide carbon emissions trading market and issuing via the China National Renewable Energy Centre green electricity trading certificates.

Investors might find China’s efforts to invest in sustainability encouraging, as the green economy has seen considerable growth in recent years. And regulatory reforms continue to open doors in China’s markets, providing opportunities to international investors as they look to diversify their exposure to a market where the majority have historically had no access.

FTSE Russell continues to support these investment choices with years of experience in the mainland China market. As the first international index provider of mainland Chinese benchmarks, we’ve developed an index product suite that demonstrates the breadth and depth of this important market.

 

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[1] Source: EV-volumes.com as of Q1 2017, http://www.ev-volumes.com/country/total-world-plug-in-vehicle-volumes/ 

[2] Source: FTSE Russell paper, Investing in the global green economy: Busting common myths on ftserussell.com

 

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