Things to Know Before Investing in China

Posted on : Sep 18, 2013 | Filled under : News

Thinking of investing in China? Here are some things you need to know.King Wealth Planning-China

China’s new government is sending clear signals: It wants the mainland stock market to appreciate. This is not proving difficult given that valuations were near historic lows for the century.

Why does China want a stronger stock market? Presumably it could help build confidence in the economy, just as underperformance for more than three years prior to December 2012 had undermined confidence, including among foreign investors and businesses with an interest in China.

Also, a performing stock market would attract local interest and possibly reduce the obsession with property investments which led to inflationary problems.

A recent report from Oriental Patron in Hong Kong, titled “China ─ 2013 Outlook,” offers some interesting insights:

  • China’s debt, as a percentage of Gross Domestic Product (GDP), at the end of 2011 was only 43.5 percent, versus 205.5 percent for Japan, 67.8 percent for the U.S., and 165.3 percent for Greece.
  • Chinese leadership tends to set slightly conservative growth targets. China’s growth for the next five years has the potential to be in the range of 7.5 to 8 percent as a result of the following growth drivers: demographic composition, and investment in information, technology, and universal healthcare.
  • As to the long-term outlook, China will likely account for one-third of global GDP by 2030.

Inevitably, all multi-year projections involve a considerable degree of conjecture, so let me add the necessary caveat: The figures above would depend on if all goes according to plan which seldom happens.

There are plenty of concerns including the government’s dictatorship. Will Xi Jinping be able to reduce corruption throughout China? Will China’s increasingly educated and often entrepreneurial managers, who did not have strong political connections, tolerate a privileged ruling class? Political stability is essential for China’s development, but its leaders also need to develop the skills and aspirations of the entire population.

Despite these concerns, China remains an economic powerhouse.

The new government is in the early stages of implementing very significant economic changes. Basically, manufacturing and exports would no longer be the top priorities. China, instead, will focus more on consumer welfare issues, including affordable housing, healthcare, a significant reduction in pollution, and wealth distribution to reduce poverty and considerably increase middle-class growth. To succeed, the government also needs to tackle the formidable problems of corruption.

There’s much to know before investing in China. The key is to arm yourself with the information you need to make a sound decision.

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

The above material was prepared by Peak Advisor Alliance.

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