Economy and politics
The new economic power China? China is home to 1.42 billion people, more than Europe and the United States combined. The interesting thing is the rise of China in the recent past. China's population is becoming wealthier every day and living standards are rising. This brings with it attractive opportunities for the future, as there are many listed companies in China with which we can profit from this development.
From an investor's point of view, it is interesting to note that the Chinese stock market hardly correlates with the US stock market. This means that price declines in the U.S. do not necessarily lead to price losses in China, and vice versa. A well-diversified portfolio thus benefits from China as a possible anchor in times of crisis.
The power of the economy, but also its simultaneous dependence on politics, becomes clear in figures. State-owned enterprises have a considerable economic influence. More than 40 % of the gross domestic product and 60 % of the workforce are the responsibility of state-owned enterprises. This is mainly due to the influential banks and real estate companies, which profit particularly in fast-growing emerging markets. But risks can also arise, as in the recent past with Evergrande.
Politics and business are inseparably linked in China. All companies and resources (real estate) are firmly in the hands of the government. Either via equity participation or via licenses.
With 1.42 billion people and a gross domestic product of 14 trillion USD, China is the second largest economy in the world after America (21 trillion USD). USD, China is the second largest economy in the world after America (21 trillion USD). More importantly, China is the fastest growing major economy in the world, with an average growth of about 9.5% since 1990. At least if Chinese figures are to be trusted.
The ADR Model and Investing for Foreign Investors
The Chinese stock market is not open to foreign investors. We can only invest in Chinese companies in a roundabout way.
The Chinese stock market is being used by more and more companies, which are having their growth financed by other investors. Around 400 to 500 companies from China, Taiwan and Hong Kong decide to go public every year.
The Chinese people believe in their companies and are therefore very happy to invest. However, the success of the companies also proves them right. Companies like Alibaba, Tencent, JD, Meituan Dianping and Co. are also popular investments abroad. However, investors have to be careful!
A common model here is a second listing in Hong Kong or the Cayman Islands. Otherwise, there is also the option of investing in an American Depositary Receipt (ADR). The investor does not hold direct shares in the respective company, as is the case in Germany, for example, but here a bank holds the shares of the Chinese company and issues certificates instead, which can be traded on the stock exchange in the USA. However, this incurs small fees for investors.
Regulation and the Communist Party in China
China is ruled by a single party: of the Communist Party. It has an interest in the success of China, but also regulates the market to protect the country. In China, most large companies are wholly or partially owned by the government. Where they do not have an equity stake, companies must acquire licenses.
For example, every carmaker needs numerous licenses from the government before it can actually start producing its vehicles. The banking, energy and raw materials sectors are firmly owned by the state. And yet: In China, it is a good sign when the state is involved. It is a sign of a company's seriousness if it is even endorsed by the state.
As an investor, however, you have to be prepared at all times for the state to assert its interests and regulate companies. This is what happened in 2021 with some Internet companies and the education sector. So, despite the opportunities that an investment in China undoubtedly offers, one must not ignore the risks or the dependence of the companies on the government.
The largest companies
Tencent and Alibaba. Two companies in particular are worth mentioning here. Tencent and Alibaba are the absolute giga-companies in China. These two form the Chinese nervous system and are the most important companies in the country. Without these two companies, the Chinese economy would be virtually paralyzed.
Alibaba is the largest Internet retailer in China, a payment service provider (Alipay) and the most important cloud infrastructure provider in China. Alibaba benefits above all from the increasing prosperity of the people in China. This is because they use Alipay and shop via Alibaba's platforms such as Aliexpress and Alibaba.
Tencent, on the other hand, is more focused on communication. They operate the social media app WeChat, which works similarly to WhatsApp and Instagram. You can exchange information with your friends here. But WeChat is not a WhatsApp clone. In fact, WeChat is more like the central contact point in the life of every Chinese person. In the app, you can manage your money, pay digitally, buy train tickets, and book vacations.
The app is more like the operating system of a smartphone. Tencent is also active in gaming. They own a few gaming studios and have stakes in many gaming companies such as Activision Blizzard, Roblox, Epic Games, Discord, and Ubisoft. Both companies can offer attractive opportunities to benefit from China and its emerging economy.
The largest and most important trading centers
Hong Kong (HKEX), Shanghai (SSE) and Shenzhen (SZSE). In China, there are three independent stock exchanges where China's companies are listed: Hong Kong (HKEX), Shanghai (SSE) and Shenzhen (SZSE). The Chinese benchmark index CSI 300 (China Securities Index 300) represents the share price performance of the 300 largest companies on the two largest stock exchanges in mainland China: Shanghai and Shenzhen.
Price development of the indices
The CSI 300 is the most important (index). The CSI 300 has been published by the China Securities Index Company since August 8, 2008, starting from a base of 1,000 index points on December 31, 2004, and currently stands at over 4,600 points.
The index is calculated during the trading hours of the Shanghai and Shenzhen Stock Exchanges (Monday to Friday 9:30 a.m. to 11:30 a.m., 1:00 p.m. to 3:00 p.m. local time).
Trading hours in China
In China, in terms of European times, the markets are open from 2:30 am to 8:00 am.
Top Shares in China