China’s economic growth trajectory, while on a downward curl since the days of its 10.64 per cent GDP back in 2010, is still outshining that of the UK and US put together.
According to data from the Organisation for Economic Co-operation and Development, these two developed economies are expected to grow in 2018 at 1.02 per cent, 2.38 per cent respectively, compared with 6.39 per cent for China.
In fact, according to the OECD data (see chart, below), China's GDP, both actual and forecast, has vastly outstripped the OECD average since 2009.
No wonder economists are concerned about a knock-on effect from a Chinese slowdown being felt globally.
But while the figures look good, it is important to remember that China is still an emerging market as far as investment risk is concerned.
There are still reasons for caution when it comes to investing in mainland China, not least the need for continued capital market reform (and a lack of political interference from the Chinese government).
Government interference has long been a bone of contention, and to some extent, still remains so, according to Gary Monaghan, an investment director based in Hong Kong for Fidelity International.
He opines: “Government intervention remains a risk, but with greater qualified foreign institutional investor (QFII) quotas, the expansion of Stock Connect and change in foreign exchange policy (from US$ focus to a basket of currencies), we are seeing signs of less centralised control.”
Similarly, Cyrique Bourbon, portfolio manager for EMA at Morningstar Investment Management Group, comments: "Perhaps the most frightening [risk] to an investor is government intervention.
"We have seen Chinese authorities move on more than one occasion to distort prices, with trading halts and short-selling bans used to stem capital flows.
"Moreover, there are hidden layers of government intervention from within private companies and capital allocation.
"The most notable has been the use of privately-owned banks to implement government policy."
As a result, the reality is, according to Mr Bourbon, that one cannot guarantee whether the state-owned enterprises receive preferential treatment.
Chart: OECD, UK, US and China GDP growth, actual and forecast, 2009 to 2018
Charles Sunnucks, assistant fund manager on Jupiter’s Global Emerging Markets team, comments: “While investors have, since the early 1990s, been able to access Chinese companies via overseas listings (namely Hong Kong), the domestic A-share market has been largely overlooked due to investability issues.
“Giving foreigners gradually greater access to the local A-share market has been a 15 year long process, which started in 2002 when China allowed a select number of institutional investors to invest directly into A-shares via the ‘qualification institutional investor’ (QFII) programme.”
Accessibility has since evolved, and most flows into the A-share equity market are now done via the ‘stock connect’, which is essentially a bilateral loop linking the Hong Kong exchange with Shanghai and Shenzhen.
So historic issues over accessibility may become just that - historic, with more investors getting potentially greater access than before to some dominant domestic stocks, such as Agricultural Bank of China, Hangzhou Hikvision Digital Technology and PetroChina.
