NEW YORK (ETF Expert) -- The case against investing in China exchange-traded funds goes a little something like this: The world's second-largest economy grew at its slowest level in 14 years at 7.7%. Local government debt has surged 67% since 2010.
Meanwhile, home prices from Beijing to Shanghai have more than doubled over the last 10 years such that real estate is in danger of an imminent collapse.
Granted, the trends toward slower growth, higher debt levels and inflated home prices are troubling. Yet, the Chinese government continues to manage the bruises and bumps associated with its emergence as a global economic superpower.
For example, in transitioning away from a "Made in China" dependency on exports, China is experiencing remarkable growth in consumption. The latest reading (111) on consumer confidence hit an all-time record. Additionally, early in 2013, China expressed determination to promote GDP above 7.5%. The economy grew at 7.7% last year.
Compare some of the statistics between the U.S. and China. Investors ignore deceleration in jobs and economic output when it occurs stateside, yet they fret when GDP in China slows from 7.8% to 7.7%. Retailers in America have been struggling to post positive sales numbers. In contrast, retail sales grew 13.6% in 2013 over on the mainland. Wage growth? Phenomenal in China. Wages in the U.S.? They have struggled to keep pace with the mildest cost of living increases.
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On the surface, then, one might think that a fund like Global X China Consumer (CHIQ) could outperform SPDR Select Sector Consumer Discretionary (XLY) on a year-over-year basis. The exact opposite has turned out to be the reality.