When the rest of the world was going into recession, China was growing at a rate of 10% or so, year on year. Although many small investors are understandably keen to jump on the bandwagon, there is concern about the transparency of the Chinese system or are aware that there are some quite draconian restrictions on foreign ownership of China investments. So is there a way of investing in China without getting burned?

Investing in China is not the easiest thing to learn about. There are plenty of people saying that China investments will be the big growth story over the next few decades, but they are not exactly clear about how to start investing in China.

That’s not surprising after all China investments are becoming famous for something other than blistering economic growth, and that is for one of the world’s most corrupt legal systems that favours those with connections, meaning that small foreign investors are very likely to be burned if they use the wrong route for investing in China.

So the first point is not to try investing in China directly. There is simply not the consumer protection in place. Many China investments are limited to Chinese residents, and of those China investments that are not the smaller people investing in China could be cut out of any really big gains while bearing the full cost of any losses. Even if there is a situation that will fall foul of the Chinese legal code, enforcement will be patchy. There are chances of big gains from China investments, but there are going to be big losses that can also be made if directly investing in China.

One route to investing in China is to buy shares in a company in Hong Kong or Taiwan which itself has some China investments, particularly Chinese operations. There are many of these companies and the legal climate is far more protective of small foreign investors than directly investing in China.

However here there is the issue of language. This can be a sensitive area for many small investors, but it is important. The attraction with making an investment in a company in an English language jurisdiction is that research is possible for the small investor. It is not just possible to look at the company’s prospectus, but also look at the wider market, the customers and the competitors. This is much harder when the language is not being spoken.

While Hong Kong has English speaking business culture, it can sometimes be hard to fully research a company, and in Taiwan English is spoken more frequently than it is in China but it is still spoken relatively rarely. Investing in China directly through a company, particularly in Taiwan, is really something that should be left to the very confident.

There are a number of China investment funds, which are set up as Unit Trusts, Investment Trusts or OEICs. These are good China investments as they tend to be backed up by strong investors who will have developed both the expertise to investigate the China investments that suit them but also have the ability to back up legally any problems that they have when investing in China.

Another way of investing in China is to buy companies that themselves own China investments or companies that sell to China, but that are listed on a major English speaking stock exchange such as London, New York or Toronto. An overlooked way of making China investments is to buy companies that produce natural resources. China is hungry for natural resources such as iron and coal, and is not able to produce what it needs. Natural resource producers that sell to China are in a particularly good position.