At first glance, the ongoing boom in China might seem like a bust. While the S&P 500 has surged more than 100 percent over the past five years, the Shanghai SE Composite Index has fallen by a more than a third. That's a curious disconnect when you consider that the Chinese economy has been expanding at a rapid clip in recent years, while our economy struggles to escape stall speed.

The answer to this conundrum lies in the nature of economic growth. For a number of years some investors such as noted short seller Jim Chanos have suggested that the Chinese economic miracle is built upon tenuous footing marked by an overbuilt housing market and industrial overcapacity.

“That hard collapse everyone has been expecting just never happened,” says Heidi Richardson, global investment strategist at BlackRock. 

Still, such fears have left Chinese stocks trading at fairly inexpensive levels. “They’re not just cheap generally, but relative to other Asian markets as well,” Richardson says. The MSCI China Index, for example, trades at around eight times projected 2015 profits versus mid-teens forward multiples for the major U.S. indexes.

Not all parts of China are cheap, though. Chinese banking stocks trade for around six times current earnings, while Chinese tech stocks, as measured by the Global X NASDAQ China Technology ETF (QQQC), trade for a more lush 30 times earnings. “Clearly, fears of a housing bubble or troubles coming from the shadow banking are leading to an investor exodus from some sectors,” says Jay Jacobs, a research analyst at ETF provider Global X Funds.

Richardson believes such sector share price weakness spells opportunity. “Investors don’t fully appreciate the depth of reforms taking place in the economy,” she says.

Looking past the current headlines, investors need to identify where the Chinese economy is headed. After a multi-decade reliance on export-fueled growth, the Chinese government is aggressively trying to boost domestic economic consumption as part of the current Five-Year Plan (2011-2015). To help nudge the transition along, wages in China have risen sharply in recent years. That boosts costs for export-oriented manufacturers but puts a lot more disposable income into the pockets of consumers.

Total household income is forecast to rise to about 40.5 trillion yuan (around $6.5 trillion) by next year, up from 15.4 trillion in 2010, according to Credit Suisse. Said another way, McKinsey & Co. expects domestic consumption to account for 43 percent of Chinese GDP in 2020, up from 33 percent a decade earlier.

That trend is well underway as retail sales in June rose 12 percent from a year earlier, which should play right into the hands of the Global X China Consumer ETF (CHIQ). That fund, which tracks the Solactive China Consumer Index and carries a 0.65 percent expense ratio, has more than 90 percent of its portfolio invested in consumer discretionary and cyclical stocks. Despite its focus on the sweet spot of the Chinese economy, this ETF trades roughly 10 percent lower than its initial offering price back in December, 2009.

And it’s a bargain compared to U.S. peers. According to Morningstar, the ETF’s portfolio trades for around 0.85 times sales, 1.6 times book value, and roughly 8.5 times cash flow. In contrast, the U.S.-focused Consumer Discretionary Select Sector SPDR ETF (XLY) trades at 1.35 times sales, 3.7 times book and 12 times cash flow.

“Incomes are growing so quickly in China, it’s surprising the Chinese consumer stocks aren’t the more expensive ones,” says Global X’s Jacobs.