Why I Keep My Distance From Chinese Stocks

I put money into companies, not countries. When I buy a share, I become a partner in that business; I follow the cash register and the management, not the flag. That is the core of why I stay away from Chinese stocks: the market of a strong manufacturing nation can leave its investors with weak returns. In this piece I place the US market side by side with the Chinese market and explain, in plain words, where the gap comes from. My own portfolio choice is the result of that math.

Look at the last ten years and the picture is stark: the US market, above all the Nasdaq side, gave its investors steady and strong returns. The Chinese market marked time over the same stretch; it shone in single years but ten-year compounding stayed far behind. In years like 2025 Chinese shares ran ahead, yet those bursts never turned into a lasting direction. In long-term investing I listen to ten-year compounding, not to single years.

Next to returns I watch wobble. Chinese shares fall hard and jump hard; that kind of tossing and turning does not fit my portfolio. The US market falls too, but its recovery frame is solid: profitable giants support buying on dips. I read risk as return for each unit of shaking; on the Chinese side that ratio falls short for me. A calmly growing portfolio beats an exciting but melting one every time.

China is the workshop of the planet, no doubt. Yet a crowd of factories does not fill the investor pocket. SeafarerFunds found that in 2023 state firms took over two-thirds of the total profits of listed Chinese companies, leaving a thin slice for private firms and small holders. CNBC reported an August jump of more than twenty percent in industrial profits, but that recovery leans on the push to trim excess supply. TradingEconomics data paints a similar picture: double-digit growth over eight months, mining in front, private firms behind. So output exists, profits exist, but the address of the profits and the address of the shares are not the same.

State sweeteners sound nice; their bill stays hidden. When loss-making firms survive on support, funds never reach the productive business; rivalry warps and prices bloat or slide into ruinous cheapness. CarnegieEndowment figures show total credit has passed three times the national income, while income grew far slower. That is an unseen load on the back of every listed firm. In my book a firm that lives on support is like a shop that lives on coupons: when the coupons end, the shop shuts.

Debt is the heaviest chapter. Wikipedia defines local government financing vehicles as firms set up to go around borrowing bans, funding roads and property plans through them. CEICData records show central government debt hit a record at the end of 2025, clearly above the year before. When debt grows and income crawls, tomorrow taxes eat today profits. A share is a slice of tomorrow profits brought to today; when tomorrow profits sit under debt, the slice shrinks, and the market prices that in sooner or later.

Then there is the flat price line. CNBC January data show consumer prices missed expectations while producer prices kept falling. When prices stand still, debt never does; its real weight grows each year. Even if company profits rise on paper, the shadow of debt grows with them. On the US side, rising prices give firms room and guard their margins. Before I invest I ask whether prices stand with the firm or against it; in China the answer leans against, which is why the market trades at a discount.

Ownership rights are my red line. In China a foreign holder often cannot own internet firms directly; a contract-based frame stands in between. NortonRoseFulbright notes this contract frame has served internet firms widely for twenty years. On paper you hold shares, but the deed sits with someone else; the keeper and the owner are not the same person. I never partner in a shop whose deed I cannot hold. A share bought on the US market is a real piece of the firm; that is the difference.

The engine of the US market is its tech firms: software, phones, cloud, ads; fat margins, fast growth. In the Chinese market the weight sits with banks, makers and energy firms; growth exists but margins run thin. I partner with fat margins, not thin ones. That is why the Nasdaq side forms the core of my portfolio. Expecting tech returns from a market with light tech weight is like expecting fish from a cove with no harbor.

What about valuations? Chinese shares are cheap, very cheap. Price-earnings ratios sit far below US levels, with Hang Seng readings near 12. But cheap alone never justifies a buy; things that stay cheap sometimes stay cheap for good reason. What would change my mind? A falling state share of profits, contract frames turning into real ownership, and debt making peace with income. Bursts like the one in 2025 give trading openings, not a core for a lasting portfolio. Until that change arrives my pick stands: the US market, above all its tech-weighted shares.