Investing in China

Many people reading this article will be interested to learn why China is seen by many as an emerging / under developed economy and is part of the fashionable BRIC group of countries. The BRIC countries consist of Brazil, Russia, India and China and this is a group of countries put forward as potential powerhouses of the future. But why would investing in China, the second largest economy in the world by nominal GDP and purchasing power, present above average risk?

The Chinese economy

One thing which we need to appreciate before looking towards the Chinese economy is the significant stranglehold which the Chinese government has in all areas of everyday life. While the control we see today is significantly weaker, at least on the surface, than that from 20 years ago and even 10 years ago, there is still much work to be done to develop "free markets". When you consider the fact that China is the largest exporter of goods in the world and the second-largest importer of goods this gives a very interesting snapshot of the current position.

Strong trading relationships with the likes of the US, Hong Kong, Japan, Taiwan and Germany for example have given the authorities a very solid bedrock from which to develop and grow the economy. However, the GDP figure per capita is only $ 7500 which is the 93rd highest in the world. It is this figure which perfectly reflects the very lucrative Chinese economy while also bringing out into the open the relative poverty which many Chinese people still live in.

Changes to the Chinese economy

For many years the Chinese economy was run exclusively by the government despite in 1978 the government of the time realized that various Chinese business arenas would need to be opened up to both domestic and overseas investors. While these changes did not necessarily kick in until the late 1980s the development of the Chinese economy, and the Chinese reputation on the worldwide stage, has been immune since then. This often mysterious world in the Far East has now opened up to overseas investors, overseas companies and overseas governments and while the authorities are still very keen to keep relative control of import markets as well as the Chinese population, major changes have been made.

Ways to invest in China

Because of the size of China, the size of companies domiciled in China and trading in China it is possible to gain exposure to the country via direct equities, collective investments and other similar investment vehicles. For example there are a few major telecoms companies in the world without exposure to China, there are few banks in the world without some form of representation in the country and this is just an example of two everyday worldwide business arenas. The main risks, with respect to China are the political difficulties and need to change regulations and laws to "abide" by international standards.

Conclusion

The China we see before us today is very different to that of yesteryear but there is still a need for further development of business practices and business regulations. The authorities will also need to reduce their stranglehold on the economy and allow businesses and entrepreneurs to flourish. The key to Chinese growth in the future is most certainly the import / export markets and improvements in domestic demand.

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