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Chinese factory activity slowed in July 2017. The country’s official manufacturing purchasing managers' index (PMI) fell to 51.4 in July compared with 51.7 in June and below a Reuters forecast of 51.6. A reading of more than 50 indicates expansion, whereas a reading of less than 50 means contraction.  


Although the world’s second largest country grew faster than expected in the second quarter of 2017, as it reported an increase of 6.9% in GDP compared with analyst expectations of 6.8%, the National Bureau of Statistics reported that the slowdown in manufacturing reflects a possible turnaround (read: China Q2 GDP Beats Expectations: ETFs in Focus).


A slowdown in growth is widely anticipated in the second quarter of the year, as the country battles its growing debt crisis and reduces the economy’s dependence on government borrowings. The country’s response to the prevailing financial risks would lead to higher borrowing costs, thus taking a toll on corporate profits (read: China's Inflation, Debt & Impact on Australia: ETFs in Focus).


New export orders were a major component driving economic growth in China in the second quarter of 2017. However, it fell to 50.9 in July compared with 52 in June and is expected to be a drag on economic growth in the second half of 2017.


Despite the slowdown in PMI, the country’s 6.5% growth target for 2017 seems attainable. The International Monetary Fund (IMF) in July increased its forecast for China’s 2017 GDP growth to 6.7% compared with its previous estimate of 6.6% released in April (read: Asia Business Optimism at 3-Year High: ETFs in Focus).


Let us now discuss a few ETFs focused on providing exposure to the Chinese economy (see all Asia-Pacific Emerging ETFs here).


iShares China Large-Cap ETF (FXI - Free Report)


This fund seeks to provide exposure to Chinese equities, serving as a pure play on the economy.


It has AUM of $3.31 billion and is a relatively expensive bet as it charges a fee of 74 basis points a year. From a sector look, Financials, Energy and Telecommunication Services are the top three allocations of the fund, with 52.01%, 11.03% and 10.14% exposure, respectively (as of July 27, 2017). From an individual holding perspective, Tencent Holdings Ltd, China Construction Bank Corp and China Mobile Ltd are the top three allocations of the fund, with 9.44%, 8.55% and 7.22% exposure, respectively (as of July 27, 2017). The fund has returned 22.21% year to date and 20.14% in the last one year (as of July 28, 2017). FXI currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.


iShares MSCI China ETF (MCHI - Free Report)


This ETF is another such option to play the BRIC nation.


It has AUM of $2.66 billion and charges a fee of 64 basis points a year. From a sector look, Information Technology, Financials and Consumer Discretionary are the top three allocations of the fund, with 37.67%, 23.24% and 10.47% exposure, respectively (as of July 27, 2017). From an individual holding perspective, Tencent Holdings Ltd, Alibaba Group Holding ADR and China Construction Bank Corp are the top three allocations of the fund, with 15.86%, 12.32% and 4.95% exposure, respectively (as of July 27, 2017). The fund has returned 35.51% year to date and 34.56% in the last one year (as of July 28, 2017). MCHI currently has a Zacks ETF Rank #3 with a Medium risk outlook.


SPDR S&P China ETF (GXC - Free Report)


This fund has AUM of $960.84 million and charges a fee of 59 basis points a year. From a sector look, Information Technology, Financials and Consumer Discretionary are the top three allocations of the fund, with 33.05%, 22.56% and 11.55% exposure, respectively (as of July 27, 2017). From an individual holding perspective, Tencent Holdings Ltd, Alibaba Group Holding ADR and China Construction Bank Corporation are the top three allocations of the fund, with 12.88%, 10.35%, and 4.77% exposure, respectively (as of July 27, 2017). The fund has returned 33.75% year to date and 33.64% in the last one year (as of July 28, 2017). GXC currently has a Zacks ETF Rank #3 with a Medium risk outlook.


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