Subsidizing China’s Superpower Aspirations

Christine Lagarde, head of the International Monetary Fund (IMF), is warning that China’s Belt and Road Initiative—the potentially multitrillion-dollar network of roads, rails, pipelines and other infrastructure across Eurasia—risks saddling unstable governments with unpayable debt.

Because of the IMF’s concerns, it plans to fund the China-IMF Capacity Development Center (CICDC) to train the Chinese to minimize the headaches caused by this century’s Marshall Plan. If all goes according to plan, the Belt and Road project will connect land- and sea-based trading routes to cement China as the center of global commerce in a decade or two.

While China appears to be ascending into world superpower status in the coming decades, a $100 investment in “global” equities allocates just $3.51 to the country, if we track an index like the MSCI All Country World (ACWI). That seems remarkably low for a country that is going head-to-head with the U.S. on the global stage.

It was only last year that MSCI announced it would be adding Chinese A-shares, companies listed in Shanghai and Shenzhen, to its MSCI Emerging Markets Index. That is late for an economy whose size surpassed the U.S. in 2014, at least on a purchasing power parity basis (see chart below).

China & U.S. Shares of Global Gross Domestic Product

Covering China, Wherever the Listing

While some Chinese companies are only available in Shanghai or Shenzhen, others are listed solely in Hong Kong. Still others have American Depository Receipts (ADRs) or are traded in Singapore.

The WisdomTree ICBCCS S&P China 500 Fund (WCHN) ETF tracks the S&P China 500 Index, before fees and expenses, covering stocks in all those bourses. This index currently holds over 50% in local A-shares. MSCI, by contrast, is only starting to add A-shares securities up to a 5% inclusion factor in 2018, a small starting point. It’s high time China has its own S&P 500, especially if President Xi Jinping has anything to say about it.