Just when you thought exchange-traded fund providers had China covered, Krane Funds Advisors LLC during the past two weeks has launched two ETFs that offer investors different ways to play the world’s second-largest economy.

Krane, a boutique asset management firm with offices in New York City and Beijing, last week rolled out the KraneShares CSI China Five Year Plan ETF (KFYP). The KraneShares CSI China Internet ETF (KWEB) began trading yesterday.

Both funds carry expense ratios of 0.68 percent. They join a field of more than 25 existing China-focused ETFs that span equities, fixed income and currencies. Both Krane funds track indexes created by China Securities Index Co. Ltd. (CSI), a Shanghai-based joint venture between the Shanghai Stock Exchange and the Shenzhen Stock Exchange that’s a major player in the index space in mainland China.

KFYP’s underlying CSI Overseas China Five-Year Plan Index measures the performance of publicly traded China-based companies that CSI believes will be important in China’s current five-year economic plan.

Since 1953 (excepting a brief hiatus during the 1960s), China’s communist government has developed five-year plans that outline its goals for social and economic growth, as well as industrial planning in key sectors and regions. And even though China has flipped for capitalism, the government has maintained its central planning ways and is now working on its 12th five-year plan (2011-2015).

This latest iteration emphasizes sustainable growth, industrial upgrading and domestic consumption. As such, the top sectors in KFYP’s underlying index comprise information technology (36 percent), consumer discretionary (16.6 percent), industrials (15 percent) and consumer staples (14.6 percent).

The fund’s remaining sectors include materials, utilities and healthcare. It’s top two positions—Tencent Holdings and Baidu.com (14 percent and 13 percent, respectively)—are also the top two holdings in the KraneShares CSI China Internet ETF (about 10 percent each in that fund, with Baidu having a slight edge). Tencent Holdings is China’s largest Internet service portal, while Baidu is China’s largest Internet search company.

“It’s something we talked about,” Brendan Ahern, managing director at Krane, says about the top weightings of both companies in both funds. “But we’re not active managers. We want to provide beta passive exposure to the industries, sectors and sub-sectors within the current five-year plan.”

As for the KraneShares CSI China Internet ETF, Ahern says two big demographic trends are driving China's Internet sector: Internet spending by urban Chinese has increased 14% annually since 2000; and China's rural population continues to migrate to urban areas, further fueling Internet usage. He also cites a McKinsey & Co. report that stated China’s e-tailing industry garnered $190 billion in sales in 2012 and could hit $650 billion by 2020.

The Internet ETF tracks the CSI Overseas China Internet Index comprised of companies focused on Internet software and services, Internet retail services, Internet commercial services, Internet home entertainment software, and mobile Internet.

More In The Pipeline

Ahern previously spent 12 years working with ETFs at iShares, where his experience ranged from business development to portfolio management, and he worked with a broad range of clients including RIAs, hedge funds and family offices.

He says Krane was formed to provide investment opportunities and investor education about China. “We think there’s a huge educational void about China that needs to be filled,” he explains. “We want to bring in the voice of our mainland partners so U.S. investors can invest in confidence in the world’s second-largest economy.”

Ahern acknowledges that investor concerns about China––such as corruption, pollution and other problems––are legitimate. But he says the new Chinese leadership, which formally took office in March and is set to govern for the next 10 years, is pushing for societal, business and financial reforms not seen before in the country.

In addition to its two new ETFs, Ahern says Krane has seven other China funds in registration with the Securities and Exchange Commission, including on the fixed-income side.

“We want to provide access to the Dim Sum market,” says Ahern, referring to bonds denominated in the local Chinese currency and issued in Hong Kong.

Ahern says Krane is focusing its distribution efforts on the institutional and hi-end advisory worlds. Cutting through the clutter of an already crowded field of China ETFs won’t be easy. But Ahern says the largest China-focused funds have a heavy tilt toward financials, which is a big reason why they’ve suffered recently.

He posits that the KraneShares CSI China Five Year Plan ETF’s broad exposure to the government’s current economic priorities makes it a viable alternative. “We view it as a fund for strategic, buy-and-hold investors,” Ahern says.

He adds that the KraneShares CSI China Internet ETF is a more concentrated and volatile basket, but that it’s focused on a fast-growing sector that should get a boost with the possible initial public offering later this year of Alibaba Group Holding Ltd., China’s largest e-commerce company.

“The whole world will know about Chinese Internet companies when Alibaba goes public, and by us getting out there now and establishing a track record we’ll be well-positioned to take advantage of that,” Ahern says.