Investing in the rapid economic growth of China can be approached from several directions. The profits from this growth are being generated both by domestic chinese companies and by foreign companies doing business in China. Investors can buy shares in both types of companies.

Investing in Chinese domestic companies

Chinese domestic companies may sell shares of different types and sometimes list on different stock exchanges. China Unicom, for example, sells A shares in Shanghai, H shares in Hong Kong, and N shares on the NYSE.

A shares are traded only by mainland citizens and a few select foreign institutions, like Bear Stearns, Goldman Sachs and Merrill Lynch. These stocks are traded in mainland A-share markets and quoted in Renminbi.

B shares are traded by both foreign and mainland citizens They are traded in mainland B-share markets and quoted in U.S. and Hong Kong dollars.

H shares are for mainland companies listed on Hong Kong and foreign stock exchanges. Mainland companies list on Hong Kong and foreign stock exchanges partly because they get better access to foreign capital. Hong Kong and foreign exchanges have higher quality reporting standards. Foreign capital tends to prefer investing in H shares because of the greater transparency of these companies. Red Chips are the best rated of the H shares.

N shares are mainland companies that are listed and traded on the New York Stock Exchange.

L shares are mainland companies listed and traded on the London Stock Exchange.

The easiest way for American investors to invest directly in Chinese companies is through ADRs (American Depositary Receipts) for these companies. ADRs for China are listed on the China page. A broader approach is to trade Hong Kong's MSCI iShares, an ETF (Exchange Traded Funds), a fund which reflects the Hong Kong MSCI Index. I find this fund unsatisfactory for investing in China. Fully 27 percent of this fund is in the real estate sector. Speculation in Hong Kong real estate is notorious and causes the index to be very volatile. This ETF trades on the AMEX stock exchange in the U.S. The Hong Kong ADRs trade on the NASDAQ and NYSE stock exchanges. To get direct access to these markets the investor needs an account with a broker which has direct access to these markets. Another alternative is to invest in a China mutual fund. Links to articles on China mutual funds, ADRs, and the Hong Kong iShares fund are included on the China, Funds, and Commentary pages.

Investing in Foreign Companies doing business in China

Foreign companies doing business in China tend to fall into two categories. A growing number of companies are domiciled in other countries, but focus on China. UTSI, for example is based in Alameda, CA, but has an amazingly successful focus on telecommunications in China.

There are also many multinational companies that invest heavily in China operations. General Motors is an example of a company which is planning large new investments in its Chinese operations. Many of these companies can be bought directly on the American stock exchanges.

Many Taiwan companies are heavily invested in the Mainland. Some investors feel the best way to invest in China is to invest in Taiwan companies that are deeply involved in the Mainland economy. Also, some Taiwan companies are benefitting from Chinese expansion through growing exports to China. Some of these companies can be purchased as ADRs on American exchanges. To get a list of Taiwan ADRs go to the China page and click on the Taiwan ADR link. An interesting article on this strategy is Taiwan's China Plays.

Many Japanese companies are also investing heavily in the mainland and many others are benefitting from rapid growth in exports to China. Investing in these Japanese companies allows one to benefit from the Chinese expansion. The easiest way to purchase some of the Japanese companies is through purchase of their ADRs on American exchanges. These ADRs are listed on the Japan page. An interesting article on this strategy is China Plays That Aren't Chinese.

Chinese Stock Markets   

There are three stock exchanges that dominate stock trading in China. The Shanghai and the Shenzhen exchanges are both on the mainland. Shanghai is the larger of the two and is likely to become one of the largest exchanges in the world. The Shenzhen exchange is located in the south, near the Hong Kong border. The third exchange that trades mainland stocks, as well as Hong Kong company stocks, is the Hong Kong exchange.

Should we invest in China now?     See China Opportunities Page