China's growth over the past 10 to 15 years has been phenomenal; the 'sleeping giant' has truly awoken.
But with experts predicting a slowdown and uncertainty relating to a potential trade war with the US, what sort of investment clouds might be on the horizon?
This special report looks at the changing drivers for growth in the economy and assesses the long-term investment case for equity investors in the world's second largest economy.
Talking to FTAdviser's editor Emma Ann Hughes, Matthew Dobbs, fund manager at Schroders, discusses why even a slower growth from China will not matter given the size and importance of the economy.
He also comments on what the inclusion of 234 mainland listed companies on the MSCI emerging market series of indices means in terms of the improving quality of Chinese A-Shares.
Watch the full video interview below.
Advisers keep client exposure to China below 10 per cent
Financial advisers have said they keep exposure to China to under 10 per cent in client portfolios.
The latest FTAdviser Talking Point poll revealed 69 per cent of advisers had less than 10 per cent of their clients’ portfolios positioned towards China, while 19 per cent had no exposure at all to the emerging market country.
Darren Cooke, a chartered financial planner at Red Circle Financial Planning, said: "I'd certainly side with the majority on China exposure.
"In my client portfolios, it sits at none to 6 per cent, depending on the risk level of the portfolio."
Jason Hollands, managing director of business development and communications at Tilney, agreed with the outcome of the poll.
"That most advisers say their clients have less than 10 per cent exposure to China is not a surprise," he said.
"China may be the most populated country in the world – though it will be eclipsed by India mid-way through this century – and in GDP terms it has a sizeable economy, but big population numbers or GDP figures should not be confused with the actual investible opportunities in China."
But he was surprised at the 12 per cent of advisers who confirmed their clients’ exposure to China is higher than 10 per cent, and warned "this seems extremely high".
Mr Hollands explained: "Do bear in mind that China represents just 3.6 per cent of the MSCI AC World index, a broad barometer of global equity markets."
Economists and investors have long predicted a ‘hard landing’ in China as its economic growth continued to slow.
"There is no doubt that many investors have become more wary towards China in recent years given the worrying expansion of credit, the managed deceleration in its growth rate and entrenchment of authoritarianism," Mr Hollands said.
"China also has some huge, looming structural challenges, such as an ageing population that is set to shrink and which is already experiencing a contraction in its workforce."
But Mr Cooke said he believed China was still a "high growth area", although he admitted it remained a highly volatile market and so should be part of a well-diversified portfolio.
"Those with higher allocations could be said to be over-exposing clients to one market, particularly when that market is a higher risk area," he noted.
"In my portfolios, I only hold more than 10 per cent exposure in the large, well-developed and more stable areas, principally the UK, US and Japan, as a single country exposure."
eleanor.duncan@ft.com
Chinese equities and the trade war with America: The house view from Schroders
China had a stronger than expected start to the year, growing 6.8 per cent despite an ongoing credit slowdown and a weaker external backdrop as developed market economies slowed.
However, we still expect policy tightening to weigh on growth this year and see a small deceleration to 6.6 per cent for the year as a whole, not least because of the impact of tighter credit on the property sector.
The latest evolution of credit tightening came in the form of new regulations on asset managers.
Part of the push to shrink shadow banking and bring lending back on bank balance sheets, we believe that the disruption threatened by the new rules was one of the reasons for the RRR cut unveiled a few days earlier.
The unexpected easing prompted theories that China was beginning to reverse its policy stance, but we see it more as a step taken to maintain liquidity as regulations took hold, and other forms of liquidity were withdrawn from the market by the central bank.
Trade tensions have undeniably worsened; the US and China are currently threatening one another with $50bn in tariffs.
Though a small share of either country's trade, let alone GDP,
the growth impact could be larger as the dispute is unlikely to end with one round of tariffs.
The policy uncertainty will likely weigh on investment, particularly for exporters, prompting caution around Chinese growth prospects for 2019.
We are also already seeing Chinese boycotts of some US goods, and administrative delays introduced for others, which (along with higher oil prices) will adversely impact inflation this year.
Avoiding an escalation of the dispute depends on what matters to the US. China is reportedly ready to increase imports of US goods to address the trade deficit, even if the $200bn reduction demanded is as implausible as China protests.
If this were the only issue the US cared about, then we think a deal would likely be done. For China it does not even imply an increase in its overall import bill, as it can substitute US goods for those bought from elsewhere.
The US might be happy with this outcome, even as its allies protest the impact on their trade balance. However, the US has also raised complaints over the lack of level access to Chinese markets, and Chinese industrial policy.
The forced transfer of intellectual property is part of this, but not the whole story. Given China’s size, subsidies provided to domestic industries can end up distorting global markets, as already seen in solar panels and steel.
However, China is highly unlikely to bow to pressure from the US to change its domestic policies. This is partly a matter of
national pride and partly, as the Chinese see it, a matter of national survival.
Should the US decide that industrial policy and market access in China take precedence over the question of trade deficits, it is hard to see a compromise agreeable to both sides.
China will have to hope that President Trump's desire for a win, particularly ahead of the US mid-term elections, will mean the US is happy to settle for a deficit reduction deal rather than something more fundamental.
Craig Botham is an economist at Schroders