Discover investing in China

China’s share market offers significant potential for Australian investors as Chinese equities are typically underrepresented in portfolios relative to its global economic impact. In addition, the scale and diversity of China’s economy presents opportunities in China’s share market that are not readily available in Australia or other western economies.

China has the second-largest economy in the world and this economic powerhouse is forecast to surpass the US to become the largest economy in the coming years. China also has the second-largest share market in the world, behind the US. China's mainland share markets are collectively valued at approximately US$12 trillion with over 5000 companies listed¹.

However, unlike the US, China is an emerging market and undergoing a profound transformation in which consumer-oriented sectors are gradually replacing heavy industry and low-cost manufacturing as the country’s economic engines. The country's young population, with a median age of just 38, is expected to drive economic growth and consumer spending for years to come. China’s rapidly growing wealth presents additional opportunities for investors.

According to the IMF², China’s economy is projected to grow by 5 percent in 2024 and 4.5 percent in 2025, and its current GDP is higher than all developed nations.

China’s continued economic growth is likely to be driven by:

• Rapid urbanisation and growth of the middle class;
• Rising income in this flourishing new middle class;
• The largest millennial generation population in the world;
• A burgeoning domestic technology sector; and
• Rising living standards for all Chinese.

The long-term growth opportunities in Chinese shares are compelling. However, capitalising on the opportunities provided by this deep, liquid and diverse market has historically been challenging due to restrictions on foreign access. However, a select number of foreign fund managers have been granted the licence, called a Renminbi Qualified Foreign Institutional Investor (RQFII) licence, which grants access to trade on China’s mainland share markets. For Australian investors, the easiest way to access China’s share market is via an ETF from one of these fund managers.

Before investing, it's important to understand the different types of Chinese shares. China has two mainland share markets, the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE). Companies listed in mainland China are known as China A-shares. A limited number of Chinese companies are also available via exchanges in Hong Kong and others are listed on foreign exchanges, like the NYSE.

Understanding Chinese equities

• A-shares are companies incorporated and listed in China. Foreigners can only access all these stocks with a QFII or RQFII licence – of which there is only a handful in Australia and VanEck has one of them. There are nearly 4,000 A-shares and it is by far the largest China equity category. Some but not all A-shares can be simultaneously accessed by the Stock Connect platform in Hong Kong.
• H-Shares are the next most common, there are around 300 of these and they are available through the Hong Kong exchange.
• P-Chips are privately controlled companies that are also available on the Hong Kong exchange.
• Red Chips are state-controlled companies listed in Hong Kong.
• N-Shares are listed on the New York exchange.
• ADRs are American Depository Receipts and are a popular way for investors to invest in foreign (ex-US) companies, including China, on the US exchange.

As most fund managers cannot access the full suite of China A-Shares, many funds and ETFs are marketed as providing access to Chinese companies but actually only provide access to H-Shares. For investors wanting true access to China’s growth, this exposure is not optimal because it means overlooking the largest category of China equities.

Which fund managers have an RQFII licence?

There are only a handful of fund managers in Australia that have been granted a RQFII (Renminbi Qualified Foreign Institutional Investor) licence. One is a super fund. Of the other two fund managers, only one offers China-specific ETFs – VanEck. VanEck offers the VanEck FTSE China A50 ETF (CETF) and VanEck China New Economy ETF (CNEW) on ASX. This means VanEck is the only RQFII-licensed fund manager in Australia that offers dedicated China A-shares ETFs.

VanEck offers three ETFs that provide investors access to China A-shares.

VanEck FTSE China A50 ETF (CETF) offers access to a portfolio of the 50 largest companies listed on exchanges in mainland China. CETF is the only market capitalisation ETF on ASX that is 100% dedicated to Chinese A-shares. CETF is diversified across companies and sectors, comprising the largest and most liquid mainland Chinese companies considered leaders in their sectors and pillars of the Chinese economy.

VanEck China New Economy ETF (CNEW) provides investors with a portfolio of fundamentally sound companies with the best growth prospects at the forefront of China’s ‘New Economy’, which includes the healthcare, technology, consumer staples and consumer discretionary sectors. CNEW is the only smart beta China A-shares ETF on ASX.

Australian investors can also access China shares via a broad-based emerging markets ETF. The VanEck MSCI Multifactor Emerging Markets Equity ETF (EMKT) is a portfolio of companies listed in emerging markets selected on the basis of four factors: value, momentum, low size and quality. It offers investors exposure to the world’s fastest developing markets, including China, Taiwan, South Korea and India.

Everyone knows China is the most populous nation on the planet and its growth during the first quarter of the century was unparalleled. As GDP per capita increased, domestic policy and reform was focussed on transitioning the economy to be consumption-led from manufacturing-led. This is an immense change.

What this means is that consumer-oriented sectors are gradually replacing heavy industry and low-cost manufacturing as the country’s economic engines. This is impacting the way the Chinese population lives, how it consumes, the living standards of the population and the industries that will propel growth moving forward.

Rapid urbanisation has led to a huge increase in consumption. Around 60% of China’s population now lives in urban areas, well up from just 16% in 1960. The World Bank projects that China’s urban population will rise to about one billion by 2030³

To give you an idea of the scope and size, 17 of the 33 megacities in the world are in China (megacities have a population greater than 10 million). There are over 110 Chinese cities with a population over 1 million people, in all of Europe there are just 35.

This rapid transformation is fuelling growth in:

• consumer staples - While the US has around 330 million potential consumers, China has 4 times that many at almost 1.4 billion. In the last 30 years, China’s record economic growth lifted half a billion people out of poverty⁴.So consumers have more money to spend.
• consumer discretionary - The bigger wallets of consumers are behind much of the change. Moreover, many Chinese are funding their consumption from savings. With over 350 million Chinese Millennials, this group of consumers are likely to spend money on entertainment and experiences and increasingly look to shopping as a source of entertainment⁵. They’re dining out more, traveling frequently, and purchasing big ticket items like cars to reflect success.
• technology - When the Chinese go shopping, they conduct 11 times more mobile payments than their US counterparts⁶, China’s population is highly tech savvy, local social networks thrive and in 2024 e-commerce sales in China are projected to be nearly double those of the US and almost three times larger than all of Europe combined⁷. Elsewhere, China’s IT sector remains a focus industry for government support as it continues to grow. China is already a world leader in many areas, but research and development is focusing on further expansion in sectors like AI, quantum computing, integrated circuits and 5G development.
• healthcare - As China’s population is ageing, healthcare will have a significant supporting role to play. Additionally, we think some of China’s pharmaceutical and biotech companies have strong innovative drug pipelines and could also benefit from overseas business expansion.

It is these sectors which make up the New Economy.

The VanEck China New Economy ETF enables Australian investors to access a diversified portfolio of China A-shares with the best growth prospects via a single trade on the ASX.

Investors can now easily access the investment potential that companies in these sectors offer, which is being brought about by the Chinese economic revolution.

With a longstanding and deep heritage investing in China, VanEck’s investment expertise in China is unparalleled.

With more than 30 years’ experience investing in China, VanEck has been working in the Chinese capital markets since 1992, including setting up a joint venture in Shanghai. VanEck launched Australia’s first China A-shares ETF and Australia’s first smart beta China ETF.

China Investor Symposium

VanEck hosts the annual China Investor Symposium following the Lunar New Year. The symposium brings together investment and policy experts to discuss the outlook on China. View a recording of our latest Symposium below.