The Olympic Games opened in Beijing yesterday, putting China at the centre of the world stage. And as the sporting pundits weigh up the country's medal prospects, financial experts will measure its investment prospects against its rivals.

Is this exciting emerging market destined for the winner's podium or fated to be an also-ran? Until quite recently the answer seemed clear: it was an out-and-out winner. Many years of double-digit economic growth had catapulted China funds to the top of the performance tables. But in the past ten months the Chinese stock market has fallen by about 50 per cent from last year's peak.

Those who are bearish about China argue that such a correction was inevitable as the stock market had run away with itself. Although China is not greatly affected by the credit crunch, the general uncertainty has led global investors to rein in their risk exposure - and so pull out of emerging markets such as China, where they can take good profits.

Rising inflation is another concern. Last year it was as low as 5 per cent but this year it has hit 8 per cent, triggering worries that Chinese exports will no longer be so competitive. This, in turn, has led the Chinese Government to tighten control of the money supply, putting a brake on rapidly growing consumer spending.

There are also worries about the standard of corporate governance in China, the economic impact of the recent earthquakes, and the increasing wealth gap between the rich coastal areas, where most of China's economic growth is concentrated, and the poorer inland provinces. A final, much-voiced concern, is whether the Chinese business model, dependent as it is on high levels of cheap exports, is sustainable in the long run.

But Brian Dennehy, of Dennehy Weller & Co, an independent financial adviser (IFA), argues that the fundamentals driving Chinese stock market growth are all still in place. He says: “The Chinese population of 1.3 billion is still a largely untapped market. About 300 million people live on less than $1 a day and there are only two cars for every 100 people. This provides scope for infrastructure improvements and new industries.” With many hundreds of millions expected to move from rural to urban areas, the Chinese will need to build the equivalent of two New York cities every year for the next 15 years.Meanwhile, China is rapidly changing in other areas. Pinakin Patel, of JPMorgan, says: “The idea that China's exports are all low-added-value items is out of date. There has been a substantial increase in exports of machinery and equipment, which account for 48 per cent of the total.

“While the State has a large stake in many companies, there is much more fragmentation of ownership than you would imagine. For example, the largest cement company controls just 3 per cent of production. There is still scope for consolidation in a number of industries.”

Future economic growth is forecast to turn out at about 8 per cent and, after their recent fall, the valuation of Chinese shares, at a price-earnings ratio of about 15, looks quite cheap, while earnings per share are growing at a healthy 18 per cent this year. Mr Patel thinks banks and consumer stocks, such as food and clothing manufacturers, look attractive.

For those looking to invest in China, Mr Dennehy likes the look of Gartmore China Opportunities fund and Invesco Perpetual Hong Kong & China fund. Mark Dampier, of Hargreaves Lansdown, another IFA, says that investors “would be mad” not to have some exposure to China in their portfolios. But he admits that it is still a volatile market so they should be prepared for “a pretty bumpy ride”.

He suggests gaining exposure to China through a global emerging markets fund, such as the Allianz BRIC Stars fund or First State Asia Pacific Leaders fund. Those prepared for the extra risk and volatility of a single country fund could go for Jupiter China fund.

Given the volatility of the Chinese market, he adds that it would be a good idea to make a regular monthly investment in whatever fund you select. “This would help to smooth out the ups and downs of the market and ensure that you buy more units or shares when prices are lower, and fewer when they are higher,” he says.

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