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Investing in China: What are the risks?

china_investment_risksA recent Funds Europe roundtable discussed the top ESG risks facing China from an asset allocation and distribution perspective. 

It’s not just about environmental risks in China, according to Nikesh Patel, head of investment strategy, UK at Kempen Capital Management. These risks are the easiest ones to manage, he told fellow panellists. 

“There are a whole range of additional risks with China, even more so and magnified when compared to other emerging markets,” he said.

“You’ve got hyper-specific issues like forced labour and human rights abuses of the Uighur Muslim population (and that, by the way, isn’t contained to Chinese equity and fixed income markets, there are large global ICT companies that have questions to answer here).”

Patel also highlighted the issue of state-owned enterprises, which make up around 50% of the A-share index, as well as the fact that ESG – or environmental, social, and governance – reporting in China is not mandatory.

“Engagement efforts more often than not are neglected by companies, there’s a very high degree of state interference in ESG matters of policy, and there’s a huge discrepancy between the interest of the Chinese government and both shareholder and stakeholder interests,” he said.

Read the full discussion about investing in China here: China: A sustainable vision for growth?

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