China ETFs Keep Disappointing

China ETFs Keep Disappointing

The Chinese stock market is one of the worst performers of 2023.

Senior ETF Analyst
Reviewed by: Lisa Barr
Edited by: Lisa Barr

Slumping retail sales, crumbling exports, falling prices and a real estate bust that never seems to end—the recent economic news out of China has been downright depressing.  

It wasn’t supposed to be this way. The end of China’s Zero COVID-19 policies and an easing of the country’s crackdown on technology firms were poised to reinvigorate the world’s second largest economy. 
Or so investors thought. 

They pushed billions of dollars into China ETFs last year, including $3.8 billion into the iShares MSCI China ETF (MCHI) and $1.7 billion into the KraneShares CSI China Internet ETF (KWEB), thinking China was going to have a better year this year.  

Instead, China’s stock market is one of the worst performers of 2023, and MCHI and KWEB have fallen 5% and 7%, respectively.  

But investors still haven’t abandoned China. Though coming in at a slower pace than last year, flows into China ETFs are still positive, totaling $937 million across 58 ETFs.  

Should investors be more concerned? 

Balance Sheet Recession  

As China’s economy continues to disappoint, there is a sense China’s economic problems might be deeper than many had thought.  

Richard Koo, chief economist at the Nomura Research Institute, has said China may be falling into a “balance sheet recession,” similar to the one that afflicted Japan in the 1990s. 

According to him, in a balance sheet recession, people work to pay down debt that accumulated during a bubble, hurting economic growth for many years into the future. 

In the case of China, the bubble was in real estate, a sector that accounts for more than a quarter of the country’s GDP.  

Troubles at Chinese property developers like Evergrande Group and Country Garden have brought the vulnerability of China’s real estate sector to light and there doesn’t seem to be an easy solution to the crisis. 

On Tuesday, People’s Bank of China cut interest rates by the largest amount since 2020 in an effort to prop up the economy and the real estate sector in particular, but authorities may have to take more drastic action if growth continues to deteriorate.  

While certainly a drag on China’s growth, there are those who believe China’s real estate downturn won’t necessarily bleed into the rest of the economy.  
That’s the view of Kevin Carter, founder and chief investment officer of EMQQ Global, who says it’s still too early to throw in the towel on China.  

Can China ETFs Stage a Comeback? 

People must remember that “a little over seven months ago, China was still in a lockdown,” he told, adding that “the idea that China was going to end the lockdowns and immediately go back to normal was pretty farfetched.” 

Carter said it’s “too early to say” what China’s economic growth will look like going forward, but he’s optimistic it can resume 5% growth, especially given that the Chinese government has “room to stimulate.”  

He also noted that some of the headwinds that brought Chinese stocks down have abated.  

“In addition to the big macro changes and the big interest rates changes, China has had a couple years of its own specific fears that have largely been resolved. The so-called China tech crackdown … and delisting risk … have been resolved,” Carter explained, while noting that “Xi Jinping himself has said he’s supportive of the technology platform companies.” 

Though it was consensus earlier this year, Carter’s bullish China view is now contrarian. The coming months will reveal whether China ETFs can stage a comeback or if the real-estate-led downturn gets deeper.  

Sumit Roy is the senior ETF analyst for, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for, with a particular focus on stock and bond exchange-traded funds.

He is the host of’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays,’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.