China is geared up to make a major contribution to global economic growth in 2024. Even with the structural challenges the country is experiencing, innovative approaches and new industries do present an important opportunity for sustainable growth in China. The rapidly expanding clean energy sector of China, for instance, accounted for about 40% of its economic expansion in 2023. Kavan Choksi Japan points out that as a key economy, China also has a vital role to play in shaping international cooperation and multilateralism amid an increasingly fractious geopolitical environment.
Kavan Choksi Japan briefly talks about China’s economy and its influence on global markets
Even with the current headwinds, China’s economy expanded at an annualized rate of 5.3% in the first quarter of 2024, faring a bit ahead of expectations. This does represent a major change in the economic trajectory of China in comparison to the first part of the 21st century. The country is steadily transitioning from the emerging market stage to a developed market stage. The status of China as the second largest economy in the world continues to position it as an important player on the global economic stage.
The economic transformation of China from an agrarian-based society to the more industrialized and urbanized China of today started in the late 1970s. Rapid growth has been a staple in China’s economic story since then. Until the last decade, the economy of the country by more than 10% per year, resulting in a significant expansion of the middle class.
The stock market of China alone makes up one-quarter of the MSCI Emerging Markets Index. Any investors putting their funds to work in a broad, emerging market index has a high chance of owning a significant position in Chinese stocks. Investors with positions in overseas stocks often look for opportunities to put money to work in China. The country is still classified as an emerging market, but its equity values represent the largest among all emerging market countries.
Kavan Choksi Japan points out that international stocks can significantly contribute to a well-diversified portfolio, which makes it a good idea to include emerging market exposure in the asset mix. After all, even with the trade tensions, China is still a globalized economy. The emerging market stocks considerably struggled in the year of 2022, and lagged performance of developed global markets in 2022 and 2023. But things have improved in 2024. In the first half of the year, the emerging market stocks began to recover ground. The MSCI Emerging Markets Index managed to gain 5.0% in the second quarter, thereby outpacing the S&P 500 and the MSCI EAFE Index measuring developed market performance. From January through June of 2024, the MSCI Emerging Markets Index is up 7.49%. The emerging markets provide a high degree of exposure to Chinese stocks as they make up about one-quarter of the MSCI Emerging Market Index. It also provides exposure to other markets that aid in diversifying investors away from potential risks coming up from investing in Chinese markets exclusively.