Should you consider investing in China's A-share Market?

Chinese representatives from the People's Bank of China, China's Shanghai Stock Exchange and Shenzhen Stock Exchange have gathered in London to encourage international investors to trade in China's A-shares, which is considered the world's second-largest equity market.

The average international investor's total China exposure was about 4 percent of its total assets as of the end of January 2024, according to multiple financial institutions.

The often asked question is whether it is good time for global investors to invest in China's equity market, given that the country's Gross Domestic Product (GDP) grew by 5.3 percent in the first quarter of 2024 - higher than the annual target of 5 percent year on year.

Fang Xinghai, Vice Chairman of China Securities Regulatory Commission, flagged excellence in manufacturing, domestic consumption and exports to developing economies as three potential sectors for further investment as investment in infrastructure, real estate and exports were now "receding."

READ MORE

Türkiye's 'mad honey' aphrodisiac that can knock you flat

The reptilian professor helping to save her species

RAZOR: Can precision fishing save biodiversity in our oceans?

Chief amongst them, China's manufacturing investment increased by 9.9 percent in the first quarter of this year, mainly driven by the country's solar and wind technologies, electric cars and batteries; China's domestic consumption to GDP stood at somewhere slightly above 50 percent as opposed to about 75 percent in the US; China’s exports increased 1.5 percent during the first quarter of this year, mainly to developing economies.

"High quality growth remains the number one priority of the Chinese government. So let's make no mistake about that," said Fang. "Capital markets are fundamental to such growth."

This falls in line with the government's call for investing in "new quality productive forces," which refer to innovation-led and advanced productive forces, such as artificial intelligence, renewable energy, shipbuilding and space exploration.

Chinese Government Effort to Facilitate Global Investors in A-Shares

Over the years, China has gradually relaxed regulations on foreign investors to make its stock exchanges more accessible. This shift began back in 2002 when China allowed Qualified Foreign Institutional Investors (QFIIs) to enter its stock markets.

This move was followed by the introduction of the Stock Connect programs, which enabled international investors to trade A-shares listed on the Shanghai and Shenzhen stock exchanges directly.

The most recent move was the "Nine-Point Guideline" by the State Council of China, with measures including encouraging dividend payments, improving the quality of new stock offering and plugging corporate governance loopholes.

"We can see that overseas investors' participation in Asia is also increasing. We are expanding different models for market connectivity through Shenzhen-Hong Kong Connect, ETF (Exchange-Traded Fund) connectivity and GDR (Global Depositary Receipt)," said Pei Huiqi of Shenzhen's international department.

Pei added that Shenzhen exchange is also encouraging companies to pay more dividends to value the investor relations, which is the new style that many companies are focused on.

Subscribe to Storyboard: A weekly newsletter bringing you the best of CGTN every Friday