Goldman Wealth: China stocks still expensive

China's stocks have tumbled since the start of the year, entering bear territory, but they still aren't looking attractive, Ha Jiming, vice chairman of Goldman Sachs Private Wealth Management for China, told CNBC.

The Shanghai Composite is down around 21 percent since its most recent high of 3,651.76 on December 22, leaving it in a "bear within a bear" market. The index is off around 44 percent from its 52-week high of 5,166.35, set June 2015.

The selloff across Chinese markets has decked valuations: The Shanghai index is trading at 11.4 times forward earnings, compared with a long-term average of 14.4 times, according to data from Nomura.

But that's not the whole story.

"When people compare fundamentals and direction of capital flows, they probably find the current level of China stocks is still too expensive," Ha told CNBC's "Squawk Box."

"If you compare the economic situation with the second quarter of 2014 when the index was at the level of 2000, today's economic fundamentals are much worse," he said.

"At that time, gross domestic product (GDP) was growing at 7.3 percent compared to now below 7 percent. At that time, industrial profit was growing 11 percent compared to almost zero now. At that time you had no capital outflow to now you have massive capital outflows."

China's economic growth rate slowed to a 25-year low of 6.9 percent in 2015, as the world's second-largest economy continues to shift away from its manufacturing roots and toward consumption.

At the same time, the country suffered almost $700 billion of capital flight in 2015, according to the Institute of International Finance. Local companies rushed to repay overseas loans as the yuan depreciated, while global investors grew increasingly wary of the country's economic slowdown and Chinese authorities' interventions in financial markets.

The country's foreign-exchange reserves also fell by $512.66 billion in 2015, a record drop for the country, which was in part attributed to Beijing's moves to prop up the yuan.

China's efforts to respond to market whipsaws in sentiment, including a rush out of the renminbi and China stocks, have dented confidence in policymakers there.

"China is now in a dilemma. On the one hand, the Chinese government still wants to grow its economy, but on the other hand, there's a great need for China to rebalance its economy, which will inevitably lead to slower growth," Ha said. "Sometimes China's policy is on this side, sometimes it's on the other side. It's sending very confusing signals to the market."

Ha also sees the potential for China's market turmoil to impact economic growth simply because of the size of the financial sector's contribution.

"The financial sector in the first half of last year contributed about 1.5 percentage points to GDP growth, coming from stamp duties, the fees collected by the stock exchanges, and commissions and also the largest part of that is the interest income from margin trading," Ha noted. "Excluding that, GDP growth was at best 5.5 percent."

But while China's market selloff may dent the mainland, Ha said the knock-on effect of a global market rout was overdone.

"The actual true economic impact is very limited. If you look at the U.S., U.S. exports to China only account for 0.7 percent of GDP and the U.S. S&P 500 sales exposure to China is only 2 percent," he said. "This kind of sentiment impact is probably overblown and it's not justified by fundamentals. "

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1