The Pros and Cons of Investing in Chinese Stocks

Are you thinking about investing in Chinese stocks but aren't sure if it is the best decision for you? Here are the pros and cons of this investment option.

Did you know China is home 20% of the world’s population? Do not miss investing in this massive, and still growing, country, especially its stock market.

That being said, there are definitely pros and cons. You’ll want to consider them carefully. Many foreign investors experience setbacks to investing in China because of language barriers, cultural barriers, and eurocentric worldviews.

Read on and we will guide you through the benefits and negatives of investing in Chinese stocks today.

Investing in Stocks: Pros and Cons

Obviously, the biggest pro to investing in Chinese stocks is the growth potential. China is poised to become the biggest economy in the world in the coming years, exceeding the U.S. Especially with how the U.S. handled the Covid-19 pandemic compared to China, this is might happen sooner than forecast.

However, a negative is that despite the economic growth, the stock market seems volatile. In 2015, the Shanghai Composite fell nearly 25%, which may dissuade some investors.

Know that China trades stocks on both the Shanghai Stock Exchange and the Hong Kong Stock Exchange. The accounting regulations are also different between China and the U.S., which potential investors should be aware of.

The Chinese Stock Market

Another risk to the Chinese stock market is the effect of government control. Even though China is poised to become a massive economy, the government could shut down any sector with little notice.

For example, the government recently banned kids from playing video games during the week. Imagine if the government of the U.S. did this–how much would Esports and gaming company stocks drop?

If you are wanting to pick stocks in specific sectors like fashion, education, or gaming, just be aware that China’s communist structure could be a real thorn in your side at any moment.

This definitely is a risky move but it could result in massive payoffs considering the potential for growth in Chinese markets.

Other risks involve certain regulatory differences and the presence of some insider trading.

How to Invest in Chinese Stocks

A good way to get started is to invest in ETFs or ADRs, which are American Depository Receipts.

You can check out for more advice concerning the trading of stocks in China.

ETFs are great because you get exposure without having to worry about legal jargon and taxes. You can consider NYSE: FXI, NYSE: MCHI, and NYSE: GXC.

Among ADRs, you can consider PetroChina Company Limited, Baidu Inc., and China Mobile Ltd.

ADRs will offer you more direct exposure to individual companies and stocks, but ETFs are more hassle-free.

Best Stocks

These are the best stocks to consider.

  • Alibaba (BABA)
  • 360 Digitech (QFIN)
  • (JD)
  • NetEase (NTES)
  • Vipshop (VIPS)
  • Baozun (BZN)
  • Tencent (TCEHY)
  • New Oriental Education (EDU)
  • GSX Techedu (GSX)
  • Pinduoduo (PDD)

Don’t Miss Out on Chinese Stocks

The last word on the matter is not to miss out. You should be keeping up with the latest news on China because it is definitely an economy that will shake up global markets in the future, even if you’re not planning to invest in Chinese stocks.

Read more about investing in our business section.