There are more and more foreign institutions that are optimistic about China's investment opportunities. This time it's BlackRock, the largest listed investment management group in the US. The group analyzed China's future investment opportunities in detail in a report called “China: An Investment Opportunity Too Big To Ignore”.

The growth of China's economy

Since implementing its first opening-up policy in 1978, China has developed rapidly and has become the second largest economy in the world. Over the past 25 years, China's GDP has grown at an average annual rate of about 9.5%; the World Bank said in this regard that China's economic growth is the fastest continuous expansion of major economies in history.

However, capital market development is out of sync, and there are few opportunities for foreign investment

For a long time, the influence of international capital on domestic investment in China has been limited, and economic growth does not mean that investment opportunities will also be synchronized. For example, MSCI said in 2010, “Annual economic growth does not always translate into a source of growth for the domestic stock market.”

China's A-share market consists of more than 3,500 companies, with a total market capitalization of close to 10 trillion US dollars. It is one of the stock markets in the world that cannot be ignored. The total market value of the Chinese bond market is about 13.6 trillion dollars, second only to the US in size.

Although China has the second-largest stock and bond market in the world, foreign investors currently hold only 3% of China's total securities.

With the opening up of onshore stock and fixed income markets, overseas investors have the opportunity to gain access to more domestic industries in China, particularly those focused on the domestic economy.

China's future opportunities are huge, and a more open China is just around the corner

By 2020, China will enter the next stage of economic liberalization by lifting restrictions on foreign ownership of securities, insurance, and fund management companies, which will open up the Chinese economy more than ever before. BlackRock said that the onshore investment process is simpler, which creates a new investment opportunity, an opportunity that can no longer be ignored.

Consumer demand is driving the Chinese economy rather than trade, making the industry a focus for investors. The huge consumption base of China's 1.3 billion consumers is a powerful growth engine. Consumer spending increased to 4.7 trillion US dollars in 2017 from 3.2 trillion US dollars in 2012.

Goldman SachsFormer chief economist Jim O'Neill said in February 2019 that global economic growth may be related to Chinese consumers.

BlackRock sorted through China's recent reform measures in February of this year, believing that these reforms are aimed at correcting imbalances caused by uncoordinated economic growth, covering many areas of the economy. They affect government as well as the business, financial and household sectors.

As 22 reforms are currently being implemented, the long-term impact is expected to have a significant positive impact on growth. China has contributed greatly to economic globalization, and at the same time it has made great strides in opening up markets to the rest of the world.

When these indices are included in A-shares, they will cause a large number of new investors' capital to flow into the Chinese market. According to Goldman Sachs, the inclusion of government bonds and policy bank bonds denominated in RMB into international indices may attract new investment of 120 billion to 150 billion US dollars into the Chinese bond market.

After the first phase of MSCI's inclusion in A-shares is completed, the weight of A-shares in MSCI emerging markets will increase dramatically, and the exposure of foreign investors to the Chinese stock market will rise to 31.3%.

China's opportunities

China has transformed from an export-driven agricultural powerhouse to a manufacturing and technology superpower. China's domestic middle class and consumer drivers are the source of new business opportunities. China's economic situation presents a competitive opportunity, and it is necessary to figure out the future direction of China's transformation.

Foreign direct investment (FDI) flows into China's science and technology sector have been increasing significantly, and now accounts for nearly one-third of total FDI.Victoria Mio, chief information officer of Robeco China Stock, said that China already has the largest robot market in the world, and the government is actively promoting the development of the robot industry through tax cuts and special R&D funds.

At the end of the report, BlackRock concluded that China will inevitably face unprecedented challenges because it will lead global economic growth. However, China's ever-changing economy is creating new opportunities for potential portfolio growth.If international investors exclude China from their portfolios, and if they continue to do so in the year ahead, these investors will miss out on the explosive development of this huge market.