Is it safe to invest in China?

With annual GDP growth  between 8.7-9.3 percent forecasted through 2013 per the World Bank it is easy to think 'China' is a good investment. It is not quite that simple though. 'China' includes the sum total of its economic components which are managed by different policies and exist in a market quite different to the United States. Having a good grasp of China's economic drivers, and which ones offer good opportunities for investing if any, is a place to start evaluating the reality behind the beliefs.

In its July 16-17 Weekend Edition, The Wall Street Journal reported China is a good prospect for investors because problems are overestimated and Chinese Stocks are cheap. Yet in it its July 18-24 edition, Bloomberg-Businessweek  offers a completely different tone, one of caution. For example,  according to the latter source all that is needed to bring China to an economic crash or slowdown is GDP below 7 percent. Moreover, also per Bloomberg-Businessweek, the Chinese real-estate market is beginning to show signs of higher supply. This tends to affect prices to the downside and the affect on net worth follows and carries through into economic numbers such as GDP from real estate related production.

The Wall Street Journal suggests China's growth gives it more leeway to use aggressive monetary and fiscal policy, but historically, linear geometric growth for decade upon decade isn't exactly a swish shot in the basket for developing nations. Even the United States had bumps in the road via the 1929 stock market crash, the great depression and 1970's oil crisis. 

China's economy is somewhat dependent on the global economy as are most economies via globalization. If global demand for products subsides along with a plateau in real estate and cost driven inflation then there is room for doubt. Additionally, a restrictive monetary tightening during a period of growth encourages cyclical economics and China's inflation is still above 6 percent per Bloomberg meaning things are getting more expensive in reference to a  less than free-floating Yuan-Renminbi. That can also lead to a cyclical pattern or slowdown and is still rather high considering the Chinese Central Bank has been tightening money supply all year to date.

Then of course there are the actual securities and details. Exchange Traded Funds, Chinese currency, Treasuries, Businesses? Where and how to invest without losing money is more than a mere technicality. How well do fund managers invest in China? Past performance is not a guarantee of future success, and due diligence on Chinese companies isn't quite as easy as for U.S. businesses. Just like any investment, investing in China is a risk and that risk is probably best kept in mind despite China's current growth which is in excess of three times that of the United States.