China’s 20-year economic boom has boosted the wealth of its 1.3 billion citizens at the fastest pace worldwide and spawned some of the biggest companies in history. Foreigners earned less than 1 percent a year investing in Chinese stocks, a sixth of what they would have made owning U.S. Treasury bills.

The MSCI China Index has gained about 14 percent, including dividends, since Tsingtao Brewery Co. became the first mainland company to sell H shares to international investors in Hong Kong in July 1993. That compares with a 452 percent return in the Standard & Poor’s 500 Index, 322 percent in the MSCI Emerging Markets Index and 86 percent from Treasuries. Only the MSCI Japan Index had a weaker performance among the 10 largest markets, losing about 1 percent.

While China’s shift toward a market economy has lifted per- capita incomes by 1,074 percent and helped its companies raise at least $195 billion through stock sales in Hong Kong, investors with $695 billion say that corporate governance concerns, competition and state intervention have eroded returns for minority shareholders. Now, as China allows unprecedented access to its local capital markets amid the weakest projected gross domestic product growth since 1990, Aberdeen Asset Management Plc says valuations must fall further before it buys.

“China is a case in point that great GDP doesn’t mean a great stock market,” Nicholas Yeo, a money manager at Aberdeen Asset, which oversees about $322 billion worldwide, said by phone from Hong Kong on July 10. “The lack of quality in terms of corporate governance is one of the main reasons we find why companies don’t perform well over the long term.”

Bear Market

The MSCI China index closed 0.4 percent higher in Hong Kong, paring this year’s drop to 9.3 percent, after government data showed the economy expanded at a 7.5 percent pace in the second quarter, matching the median estimate in a Bloomberg News survey of economists.

The gauge of companies from Industrial & Commercial Bank of China Ltd., the world’s second-largest lender by market value, to PetroChina Co., the third-biggest energy producer, entered a bear market last month after falling as much as 22 percent from this year’s high in January.

The Hang Seng China Enterprises Index, a gauge of 40 H shares, has declined 18 percent this year. It’s up 138 percent, excluding dividends, since Tsingtao Brewery began trading on July 15, 1993. The Shanghai Composite Index of mainland-listed companies has dropped 10 percent this year and is up 143 percent during the past two decades.

QFII Program

The nation’s stocks have retreated amid a surge in money market rates last month that spurred economists at Goldman Sachs Group Inc. and China International Capital Corp. to predict GDP will expand 7.4 percent this year, which would be the weakest annual rate since 1990.

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