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ETF Specialist

Our Picks for China Exposure

With the economic outlook improving, we're cautiously optimistic about new leadership and new reforms.

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Economic data out of China suggests that a "hard landing" scenario is now fairly unlikely. Industrial production growth rates had been trending down since 2010 but are now stabilizing at around 9%. China's electricity output rose 6.4% in October, an improvement over the low-single-digit growth rates seen in the past few months. Retail sales growth has also been trending up over the second half of 2012 to reach 14.5% in October. A number of economists now think that the third quarter's gross domestic product growth of 7.4% will mark the bottom and that China's growth will regather its prior pace in 2013.

It is probably not a coincidence that these improving data points coincided with the meeting of China's 18th Party Congress last week when new leaders for the next 10 years were selected. Improving economic figures were certainly buoyed by government-mandated infrastructure spending earlier this year (though at much lower levels relative to 2009). During the transition period before the new leaders assume power in March next year, the government will likely continue to use stimulus spending, as needed, to keep the economy humming. In the coming years, we are optimistic that this new crop of younger, more liberal-minded leaders should have a positive impact on China's economy and that we will gradually see much-needed reforms such as interest-rate liberalization, yuan appreciation, and more competition in industries dominated by state-owned firms--policies that will support stronger growth in domestic consumption.

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Patricia Oey does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.