As one of the BRIC nations (Brazil, Russia, India and China), China represents a huge opportunity for investors with nerves of steel and a risk tolerance that most people would love to have (particularly when it comes to alpha-male poker tourneys). When it comes to mutual funds, legendary manager Anthony Bolton has come out of retirement specifically to head up a brand new, China-based mutual fund for one of the leading fund companies in the world – Fidelity. So what does that tells us regular folks about the merits of China insofar as growth funds are concerned?

For starters, it confirms the global opinion that China certainly presents a huge investment opportunity. This is not simply a North American view (Bolton is, or was, based out of the UK and his track record from 1997 to 2007 with Fidelity’s Special Situations Fund speaks for itself). But investment field aside, all industries are a little nervous about China. Why? Because of what will happen as their economy grows.

See, as China’s economy continues to grow, the financial demographics of their population will shift. There will be a growing middle class, regardless of what naysayers might preach about the socialist possibilities of their government. There is already evidence of this as Chinese workers outsource their skills to the world through the internet and other legitimate venues. In addition, China is one of the world’s largest student’s of the English language. It is estimated by People Stream that as China becomes the world’s largest English-speaking nation, the market will increase by 300 million possible employees. Even at 1/2 of the salary (this is being generous) of North American employees, Chinese candidates present a huge cost savings for companies that need English-speaking individuals. (You can view their 5-minute YouTube presentation here). For the Chinese, this translates into a growing middle class with growing middle class wants and vices. Even if the naysayers are right and a “socialist” government controls Chinese markets when they cannot control the inflow of wealth, they may be able to control where that wealth is spent. Regardless of whether there is much control, a lot of that wealth will be spent in China, allowing Chinese companies to see a long road of prosperity ahead of them. And that is as of today! Not five years from now, but right now.

Some of the risks to investing in China are well-known already. They include poor transparency in terms of environmental controls. Poor transparency in terms of financial reporting. They include a currency that the government will not allow to fluctuate on the free market (it is pegged to another currency, the US dollar). These are all risks; an investor might find a great Chinese company one day only to find that it has not made a dime or was bankrupt or presented inaccurate financial records or was penalized for not having the right government contracts and so on and so forth. In other words, it could be gone within a matter of days… These are real risks with investment in China.

By holding a growth fund with a China focus, investors would hope that the mutual fund manager has done his or her due diligence. Some funds, however, will not do this properly, they will not visit the company or do more than analyze the figures. There could be more risk with funds with low assets under management than larger funds with enough of a capital base to fund such trips to China. The bottom line is that investors should approach these types of investments with a great deal of caution. They should understand the thinking behind the fund itself and should be comfortable with the management team. With such things out of the way, investors looking to enjoy long-term growth will surely be rewarded.