A re-look at China stocks?

CHINA is the world's second- largest economy and descriptions of its potential are often accompanied by superlatives. With a population of around 1.4 billion, almost a fifth of the world's population, and an emerging middle class that has a seemingly unlimited demand for consumer goods and commodities, the prosperity of the world will increasingly depend on how China's economy develops. In the last 30 years, China's economy had grown at a breakneck pace, with real growth rates exceeding 10 per cent a year more often than not. It slowed in the past year to around 8 per cent, but growth like this is still the envy of most countries.

Investors, however, have generally not fared well in the Chinese market in recent years. The Shanghai Stock Exchange Composite Index is languishing at around 2,100 points, not far away from 2009 lows and a world away from the 6,000 points recorded in 2007. The Shenzhen Stock Exchange Composite Index is not quite in the same situation, but at 1,000 points, it is off the peaks of 1,500 points reached in 2007 and 1,300 points in 2010. Stocks, which reached highs in the final quarter of 2007, had plunged during the global financial crisis, rebounded briefly and have been on a downtrend for the past few years. The slump is partly caused by a slowing economy and a lack of confidence in the country's financial system. Other than concerns over the manipulation of economic data, recent bugbears have included the credit crunch this June, when the Chinese central bank momentarily refused to add money to the banking system, concerns over too much lending especially to local governments, shadow lending by banks outside of their balance sheets to get around regulations, and potential ba…