It's been hard for investors to make money in China over the past few years. After a decade of 9%-10% annual gross domestic product growth, driven by exports and fixed-asset expenditures, China is facing a new normal: weaker external demand for exports and slowing infrastructure spending. Another significant concern over the past few years has been uncertainty regarding the stability of China's financial system, which includes the banking and property industries. All of these issues have weighed heavily on the performance of Chinese equities.
The Chinese government acknowledges that it needs to shift its growth away from hard asset and infrastructure spending to domestic consumption. To this end, China's new leadership is focusing on financial sector reforms, taxes, social inequality, and urbanization. More details are expected to be released following next month's meeting of senior government officials--the Third Plenary Session of the 18th Chinese Communist Party Congress (historically, new leaders have used the third plenum to unveil a major multiyear political and economic reform program). While a large-scale economic transition will be challenging and slow-going, at least China has a long-term-focused growth plan. The same can't be said for countries such as India and Brazil.
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Patricia Oey does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.