Is China a safe and prosperous bet for exchange traded fund (ETF) investors right now? It has fallen two-thirds from its high, but it is still competing with the United States as a world economic leader?

China’s slowdown is linked primarily to declining exports to developed markets, so the slowdown within their borders has less to do with a broken domestic economy than small problems that cause stumbles along the way. China holds the largest chunk of U.S. Treasury bonds, at least in 2008, worth an astounding $696 billion. This money has, in essence, backed the efforts of the United States to finance budget and current account deficits, reports David Berman for Report On Business, excerpted from Globe and Mail.

It’s not hard to envision a day when China owns a nice slice of the world’s equity and debt markets, however, it is hard to imagine that the Shanghai stock exchange would surpass the importance of the S&P 500 or outperform it in the long run. China is becoming a big player overseas by investing directly in a number of state-owned and publicly traded natural resource companies, including the $19.5-billion investment in Rio Tinto PLC.

Meanwhile, one ray of hope in China is that factory orders are beginning to pick up, reports Scott Tong for Marketplace. For an economy so heavily dependent on exports, it’s a good sign. Whether it’s a real recovery is up in the air, though.

On the one hand, the lights are on in the factories and it’s a great sign for China. On the other, if the rest of the world is going off a cliff, what’s going to happen to these factory orders?

  • iShares FTSE Xinhua China 25 Index (FXI): down 20% year-to-date; down 8.7% for one month; FXI is still below its long- and short-term trend lines

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.