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Is China the Most Important Market in the World?

One of the biggest stories right now is China. We began the week with a sell-off in Shanghai that spread to Europe and the U.S., and we saw more selling Wednesday. China’s stock market fell 20 percent in the last two weeks “sending tremors through equity markets worldwide” (as one story here on CNBC.com put it).

We talked earlier this month about how China is topic number one again, and this week’s events certainly reinforce that. The fact that the world watched China so closely this week raises the question: Is China now the most important market in the world?

I’m not sure we’re quite there yet, but I do think there is a very important distinction that needs to be made when considering that question – China’s economic market versus China’s stock market.

The importance of China’s economy is well-known. I’m hearing from CEOs everywhere that China is their most important market. (Hewlett-Packard CEO Mark Hurd was the latest to tell me that when I spoke with him exclusively after the company reported earnings.) The numbers are overwhelming. You have 1.3 billion people and an emerging consumer class. You also have a government that has injected massive amounts of money to stimulate economic growth.

The concern this week was whether that growth has again slowed in China, but I have my doubts. Certainly over the long term, China is going to be an important growth engine for many U.S. and global companies as everyone wants to sell to that part of the world.

The importance of the Chinese stock market is a different question. It is not as liquid, efficient or transparent as the U.S. stock markets – at least not yet – and there often appears to be a loose connection between Chinese stocks and the fundamentals of China’s economy.

That said, the stock market there is becoming more important, and it’s worth noting that individuals in China are increasingly looking to invest their money beyond savings accounts. The number of companies trading on the Chinese stock market is also on the rise, and just this week, regulators said they would make it easier for companies to go public. We’ll see if it plays out this way.

China remains a fascinating place to watch and is clearly of growing importance to investors everywhere. We’ll be hearing more about this from top investing pros in the coming weeks, including ways they recommend taking advantage of this powerful trend.
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