The U.S. trade deficit grew to a more-than-expected $36.5 billion in September, and 60.5% of the deficit was to China alone, writes Justin Fox for TIME. The U.S.-China economic relationship won’t be resolved anytime soon because of U.S.-based corporations selling products that were partly or entirely made in China. The more important fact, however, is that there is no way to ignore a rising political and military power like China. (Reasons to watch China).

The trade model between China and the United States remains unchanged, with China keeping the yuan artificially low and focusing on its export industries while the United States incurs a higher trade deficit and more debt, remarks Mark Trumbull for The Christian Science Monitor. (Is a strong Chinese yuan a good thing?)

Obama has not shown any pushback against China’s seemingly non-free market policies, despite promises on a tougher stance on China. However, economists are doubtful that any pushback would occur, citing several reasons:

• The tougher approach could result in higher-priced goods for U.S. consumers and the protectionism would rapidly spread to other nations, putting up trade barriers.
• China’s manufacturing power is not slowing one bit.
• An adjusted yuan won’t necessarily help U.S. manufacturers.
• The United States doesn’t have much leverage on China since China is the country’s main lender.

U.S. trade representative Ron Kirk stated that the United States wants trade and investment barriers removed to promote an open global trade system and Obama wants the United States to pursue “pragmatic cooperation” with Beijing, according to BBC News. Obama also urged Asian countries to break away from their dependence on exports and pursue “balanced,” sustainable growth.

For more information on China, visit our China category.

• iShares FTSE/Xinhua China 25 Index (NYSEArca: FXI): up 58.2% year-to-date

• SPDR S&P China (NYSEArca: GXC): up 66.8% year-to-date

• PowerShares Golden Dragon Halter USX China (NYSEArca: PGJ): up 65.9% year-to-date

• Claymore/AlphaShares China Small Cap (NYSEArca: HAO): up 96.5% year-to-date

• Claymore/AlphaShares China All-Cap ETF (NYSEArca: YAO): recently launched

Max Chen contributed to this article.

Many politicians and intellectuals feel that the balance of power is shifting from the United States to China and some believe that the co-operation of the near-equals could solve world’s woes, according to The Economist. (Reasons to watch China).

China is the world’s biggest holder of American debt, which gives the country a unique hold on the American economy and reserve-currency status. Nevertheless, China will continue to lend to America and talks about the Chinese yuan becoming a world reserve currency may be just that.

With the Occident in a less-than-satisfactory state, Chinese companies may push to lift the trade barriers on high-technologies imposed by the West and start to court America’s high-tech industries. Perhaps, China may soon have a more permanent presence in the United States in areas such as the car industry.

Some Chinese leaders have voiced caution over the stability of China’s recovery. Yu Yongding, former adviser to China’s Central Bank, argues that wasteful spending on unnecessary infrastructure projects could drain the country’s fiscal strength, which would leave China with “no more drivers for growth.” (Things China needs to grow).

China is still grappling with many issues that need attention inside the country including rising protests, corruption, surging crime and leaders who fear their own citizens. If you’re invested in China, be sure to have a strategy for both entry and exit. It’s a country with tremendous growth potential, but it’s not without its issues, either.

For more information on China, visit our China category.

• iShares FTSE/Xinhua China 25 Index (NYSEArca: FXI): up 57.3% year-to-date

• SPDR S&P China (NYSEArca: GXC): up 66.2% year-to-date

• PowerShares Golden Dragon Halter USX China (NYSEArca: PGJ): up 62.5% year-to-date

• Claymore/AlphaShares China Small Cap (NYSEArca: HAO): up 93.3% year-to-date

• Claymore/AlphaShares China All-Cap ETF (NYSEArca: YAO): up 7.1% in the last week; YAO launched on Oct. 19 (read about it here)

Max Chen contributed to this article.

According to Patricia Oey at Morningstar, China’s Shanghai Composite Index is up 60% year-to-date, the nation is expecting to see GDP grow by 8% and price/earnings ratios for China ETFs are at year-to-date highs, around 18 times trailing 12-month earnings, but still below highs of around 28 times, reached in 2007. (How to play China).

When considering China it’s important to keep in mind both the political and economic risks involved in investing in an emerging market.  With the vast array of ETFs on the market, China is relatively easily accessible. (China in a bubble?)

For more stories on China, visit our China category.

• iShares FTSE/Xinhua China 25 Index (NYSEArca: FXI): up 52.5% year-to-date

• SPDR S&P China (NYSEArca: GXC): up 61% year-to-date; heavily weighted in financials, telecom and energy

• PowerShares Golden Dragon Halter USX China (NYSEArca: PGJ): up 60.7% year-to-date; enables investors to invest in companies listed in the United States

• Claymore/AlphaShares China Small Cap (NYSEArca: HAO): up 91% year-to-date and offers investors fairly balanced sector weightings

• Claymore/AlphaShares China All-Cap ETF (NYSEArca: YAO): YAO launched on Oct. 19 (read about it here)

Kevin Grewal contributed to this article.

Xiong Bilin, a top economic planner, said the growth rate for January-September would be more than 7%. September showed improving trade, housing sales, manufacturing and car sales, reports Elaine Kuternbach for Associated Press. The official numbers will be released tomorrow. China is also on pace to surpass its target growth rate for 2009. (Is China in a bubble?)

Such growth is helping offset falling trade and export numbers, reports Elyse Andrews for Cabot. Other facts continue to support the health of China’s economy, according to The CIA World Factbook:

• The opening of trade routes in the 1970s, and a market-oriented economy has taken China’s growth from a centrally-oriented system to a world power.
• The currency has been tightly linked to the U.S. dollar, however, re-valued currency has taken the renminbi up 2.1% against the dollar.
• In capital terms, the country is still lower-middle income dominated. The government faces challenges to sustain this and keep growth moving in the right direction.

How to play China with ETFs:

• Claymore/AlphaShares China All-Cap (NYSEArca: YAO): Began trading on Monday; the fund had trading volume of more than 1.3 million shares, making it the 11th largest first-day volume for a U.S.-listed ETF ever. (Read more about this ETF).

• Claymore/Alpha Shares China Small Cap (NYSEArca: HAO): up 88.7% year-to-date; small caps tend to do better in a recovery than large caps because they’re more nimble and quicker to react to changing economic conditions. (Read more about small-caps).

• iShares FTSE/Xinhua China 25 Index (NYSEArca: FXI): up 54.2% year-to-date

• SPDR S&P China (NYSEArca: GXC): up 62.5% year-to-date

• PowerShares Golden Dragon Halter USX China (NYSEArca: PGJ): up 64.6% year-to-date

For more stories about China, visit our China category.

Simon Johnson of Baseline Scenario states that two things to look at when analyzing China are productivity and rent-seeking.  China is very well known for investing in activities that raise productivity, which is evident in their emphasis on infrastructure and manufacturing.

Johnson, who outlines rent-seeking as “effectively a tax extracted by one sector from the rest of the economy,” feels that we’re in a perilous path by rent-seeking in the financial sector, boosting it at the expense of taxpayers.

Johnson suggests that finance, in its modern American form, is not productive. If we continue to focus on this and China continues to focus on making things, then we could be in trouble. Year-to-date, China has performed very well and the nation’s emphasis on productivity has served it will in recent months.

There are a number of ways to play China via ETFs. Don Dion of theStreet.com states that the Claymore/AlphaShares China Small Cap (HAO) is the best Chinese ETF in terms of performance. It’s up 75.7% year-to-date with an expense ratio of 0.7%. It also benefits from a historical tendency for small-cap stocks to perform well in recovery periods. The fund has wide exposure to private companies, rather than state-owned ones, as well.

Another notable ETF is the iShares FTSE/Xinhua China 25 Index (FXI), which is up 41.8% year-to-date, which is more concentrated and heavily invested in large caps.

For more stories on China, visit our China category.

Kevin Grewal contributed to this article.

Shanghai tops a list of Chinese cities and their business conditions recently released by The Economist.  The list is made up of 44 Chinese cities that were compared in five areas: economic performance, market opportunities, labor market, infrastructure and environment.

The port city of Shanghai was deemed the top city and the best place to do business in mainland China. However, the list is on a scale from 1-5, and Shanghai landed at 3.42, seemingly indicating that there’s some room for improvement.

Not far behind Shanghai was the swiftly growing Guangzhou and the Olympics host, Beijing.  Guangzhou is a city that is tops for infrastructure, while Beijing is the home to the best labor market.

Some of the top 15 cities include larger cities, focusing on the boom in the domestic market.  Some of these cities include Tianjin and Chengdu.

Some smaller cities have also performed well.  Cities with lower external trade exposure have shown promising trends during the recent global economic slowdown.  These cities are expected to do nicely over the next decade or so as the Chinese economy matures and no longer relies so heavily on exports for growth.

When China resumes the uptrend that dominated much of 2007, perhaps some of these cities will be able to capitalize and play to their strengths.  Some ETFs looking to capture this continued growth include:

• iShares FTSE/Xinhua China 25 Index (FXI), down 28.4% year-to-date
• SPDR S&P China (GXC), down 31.9% year-to-date
• PowerShares Golden Dragon Halter USX China (PGJ), down 32.9% year-to-date
• NETS Hang Seng China Enterprises Index (SNO), down 17.4% since May 14 inception
• Claymore Alpha/China Small Cap (HAO), down 26.9% since Jan. 30 inception

Matthew Hougan for Index Universe helps us dig through the market and find hidden gems. These are all ETFs with fewer than $10 million in assets as of July 31, 2008.

• United States 12-Month Oil (USL): With $7 million in assets, and a bevy of potential, it is baffling why USL has not taken off with the commodities boom. In theory USL does not stick close enough to the spot price of oil. Launched Dec. 6, 2007.
• iPath Global Carbon (GRN): The major problem here could be that investors find it hard to fit it into a portfolio. $5 million in assets. Perhaps once industrial production increases, the value of carbon credits will, too.
• Market Vectors Gulf States (MES): $4 million in assets isn’t much compared to the PowerShares equivalent fund with $31 million. The ETF is a pure play on the Middle East, and this region gives a solid diversification tool. July 22, 2008 inception.
• Claymore Alpha/China Small Cap (HAO): $9.8 million in assets. This ETF could be great going forward with the rise of the Chinese middle class and entrepreneurial power. Right now, the bigger state-owned companies dominate and do not reflect the innovation of the middle class.
• NYSE Arca Tech 100 (NXT): $7 million in assets and growing. This ETF lends itself to the tech companies within all three indexes, rather than just the NASDAQ. There is also a 5% cap-weighting so that the companies do not get overweighted. This pure tech play will not get backed up like the NASDAQ 100 did when financials tanked. March 26, 2007 inception.

But are tightening rules for businesses hurting them ahead of the games? Anthony Kuhn for NPR says that the government’s rules are giving rise to a new Olympic sport: griping.

The new regulations have given rise to some inconveniences for residents of Beijing: job fairs are canceled, the health ministry has asked hospitals to postpone non-essential procedures to free up medical staffs and there’s a ban on remote-controlled airplanes. A rash of bad press about the rules in other countries has led some to dub them the “No Fun Games.”

The tightening rules have some business owners worried. For example, police are getting strict about closing times, and it’s changed the odds for those who were hoping that an influx of visitors would bring in a windfall.

ETFs that could be affected by restriction include:

• iShares FTSE/Xinhua China 25 (FXI), down 18.9% year-to-date
• SPDR S&P China (GXC), down 22.8% year-to-date
• Claymore/AlphaShares China Small Cap (HAO), down 17.8% since Jan. 30 inception