China ETF Returns by Year (1Y–10Y)

What “Returns by Year” Really Means (and what it doesn’t)

Annual returns tell a story, but they tell only one chapter at a time. A single year’s return-whether positive or negative-captures the change in value from January 1 to December 31 of that year. When investors ask “what are China ETF returns by year,” they’re usually asking for that annual snapshot: the percentage gain or loss investors experienced if they held the fund throughout a given calendar year.

However, annual returns can be dangerously misleading on their own. A stunning 54% return in 2017 means nothing if you bought the fund on January 1, 2018, only to watch it decline 19% that same year. This is where trailing returns (also called period returns) and rolling returns become essential. Trailing returns measure performance over a fixed window-1 year, 3 years, 5 years, 10 years-calculated to a specific end date. Rolling returns, by contrast, show what returns looked like during every possible window of that length. A rolling 5-year return calculation, for example, shows what happened to an investor in every consecutive 5-year period going back as far as data exists.

Drawdowns add the final critical piece: the maximum peak-to-trough decline during any period. A fund might show a positive 10-year annualized return, yet investors who bought at the peak in 2021 and held through 2022-2023 experienced a 50% loss before recovering. Without understanding drawdowns and recovery time, trailing returns can create a false sense of consistency.

The Benchmark Problem: Index vs ETF vs Investor Experience

The MSCI China Index serves as the primary yardstick for China equity performance. It includes approximately 559 large and mid-cap Chinese companies-a mix of A-shares (domestic mainland listings), H-shares (Hong Kong-listed companies), Red chips, and American Depositary Receipts (ADRs). The index covers roughly 85% of the investable Chinese equity universe accessible to international investors.

However, the index itself is not directly investable. Investors access it through ETFs like the iShares MSCI China ETF (MCHI), which seeks to replicate the index’s performance. Here’s where divergence begins:

1. Expense ratios (MCHI charges 0.59% annually) drag returns down relative to the index.
2. Tracking error results from imperfect replication-the fund may not hold all index constituents, or holds them in slightly different weights.
3. Cash drag occurs when the fund holds a small cash position, earning minimal returns.
4. Trading costs are incurred during rebalancing and index changes.

As a result, the iShares MSCI China ETF typically lags the benchmark. Over 10 years (as of December 31, 2025), the MSCI China Index returned 5.54% annualized, while MCHI returned 4.96% annualized-a 58 basis point shortfall (0.59% annual fee plus small tracking error). This gap widens over longer periods due to compounding.

Similarly, the iShares China Large-Cap ETF (FXI) tracks the FTSE China 50 Index-a different, more concentrated benchmark of the 50 largest Hong Kong-listed Chinese companies. FXI’s 0.73% expense ratio and focus on large-cap, H-share stocks produce meaningfully different results than MCHI’s broader, more diversified approach.

Annual Returns: How China ETFs Have Behaved Over Market Cycles

China’s stock market operates in regimes. Understanding these regimes-and where we are within them-matters far more than any single year’s return.​

Year	MSCI China Return
2014	7.96%
2015	-7.82%
2016	0.90%
2017	54.07%
2018	-18.88%
2019	23.46%
2020	29.49%
2021	-21.72%
2022	-21.93%
2023	-11.20%
2024	19.42%
2025	31.17%

The Boom Regimes: In 2017, China’s stock market surged 54%-driven by corporate earnings growth, multiple expansion, and optimism about reform. Similarly, 2020 delivered 29% returns despite COVID-19, as government stimulus and a recovery narrative took hold. Most recently, 2025 saw a 31% return, reflecting policy easing and valuation support from authorities.

The Crackdown and Deleveraging Regimes: 2021–2023 represented a sustained bear market. In 2021, a regulatory crackdown on tech companies (particularly education platforms and ride-sharing) plus trade tensions produced a -22% return. The following year, 2022, saw another -22% as lockdowns, property sector weakness, and recession fears persisted. Even 2023, a partial recovery year, was underwater at -11%. Investors who bought during the 2017–2020 boom and held through 2021–2023 experienced a cumulative loss despite the headline strength in those earlier years.

The Flat and Uncertain Years: 2015–2016 bookended the post-2015 devaluation scare, producing nearly flat returns (-7.82% then +0.90%). These years feel invisible in long-term reviews, yet they destroy time-weighted returns and test investor conviction.

The cycle pattern is clear: China experiences extended periods of boom (2–3 years) followed by extended periods of retrenchment (2–4 years), driven by policy shifts, regulatory waves, and global sentiment swings. This is fundamentally different from the U.S. market’s pattern of shorter, milder corrections.

Trailing Returns (1Y/3Y/5Y/10Y): How to Read Them Correctly

Trailing returns measure compound annualized performance over a fixed horizon, ending on a specific date (usually quarter-end or year-end). As of December 31, 2025:

Period	MCHI	FXI	MSCI China Index
1-Year	31.07%	29.01%	31.17%
3-Year (ann.)	11.23%	13.50%	11.63%
5-Year (ann.)	-3.72%	-1.67%	-3.20%
10-Year (ann.)	4.96%	3.27%	5.54%

What each horizon tells you:

• 1-Year returns capture the most recent bull or bear market leg. A 31% 1-year return looks spectacular, but it follows a devastating 3-year period (2021–2023) that nearly wiped out that entire gain. Never use 1-year returns to justify a long-term thesis.
• 3-Year returns average out shorter-term volatility but still reflect recent sentiment. The 11.63% annualized 3-year return (2023–2025) masks the reality that 2023 was a -11% year. An investor who bought at the peak in 2021 and measures a 3-year return from Dec 2021 to Dec 2024 would see roughly 5-8% total return (slightly positive), not 11%.
• 5-Year returns are where China’s structural slowdown becomes visible. A -3.20% annualized 5-year return (2021–2025) means that despite the 31% gain in 2025, the period as a whole has not compounded wealth. Earnings growth failed to offset valuation compression and regulatory headwinds. This is the honest result an investor would see if they bought China exposure in late 2020 and held through 2025.
• 10-Year returns flatten further to 5.54% annualized, reflecting two complete market cycles: the boom of 2017 and 2020, and the bear markets of 2018, 2021–2023. A 5.54% annualized return over 10 years means an initial $10,000 investment would have grown to roughly $17,000 by 2025-a far cry from the S&P 500’s 11–12% annualized returns. This gap is the core reason why many investors have reduced China exposure.

Why “flat” 10-year returns matter: The 10-year horizon did not begin with a gain. It began with the global financial crisis recovery (2010–2012), a recovery rally (2013–2014), the 2015 devaluation panic, then the 2017 boom. But starting from different points yields dramatically different results. A 10-year trailing return measured from January 2015 would be negative; measured from January 2008 would be substantially higher. This is why rolling returns-discussed next-are essential for honest performance assessment.

Rolling Returns and Drawdowns (the missing piece in most SERP pages)

Rolling returns answer the question: “In every possible X-year period in history, what range of annualized returns did investors experience?” This eliminates the luck of start and end dates and reveals the true distribution of outcomes.

For the MSCI China Index, rolling 5-year returns from 2000 onward show:

• Some 5-year windows delivered 10%+ annualized (2010–2015 recovery)
• Many windows delivered 0–5% (2015–2020, 2018–2023)
• Several windows returned deeply negative before recovery (2007–2012 post-crisis)

A rolling return analysis reveals that holding China equities for 5-year periods is genuinely uncertain-the outcome depends heavily on when you invested. Contrast this with U.S. equities, where nearly every 10-year rolling window is positive.

Maximum drawdown is the steepest peak-to-trough decline experienced in a given period. For the MSCI China Index overall, the maximum drawdown is 73.30%, which occurred from October 30, 2007, to October 27, 2008-the global financial crisis. FXI, as a more volatile large-cap vehicle, experienced a lifetime maximum drawdown of -72.7%.

What does a -73% drawdown mean in human terms?

• An investor with $100,000 in a China ETF at the October 2007 peak would have seen it decline to $27,000 by October 2008.
• To recover to $100,000 from $27,000 requires a 270% gain, not a 73% gain in the opposite direction.
• Recovery typically takes years. After the 2007–2008 crisis, the MSCI China Index took roughly 3–4 years to recoup losses.

More recent context: The 2021–2023 period saw approximately a 45–50% cumulative drawdown (not as severe as 2008, but prolonged). Investors endured roughly 3 years of negative returns, making time-to-recovery both financially and psychologically costly.

A practical “what to check” checklist for China exposure:

• Maximum drawdown: Accept that China will experience 30–50% drawdowns every 5–10 years; plan accordingly.
• Recovery time: Expect 2–4 years to recover from major losses; don’t panic-sell during recoveries.
• Volatility (annualized standard deviation): MSCI China’s 10-year volatility is 24.08%, roughly 1.7x the U.S. stock market’s typical 14–15%.
• Sharpe ratio: At 0.25 (10-year), China’s risk-adjusted returns are weak relative to other markets; this means you’re being paid poorly per unit of risk taken.
• Negative trailing returns at any horizon: If 3-year, 5-year, or 10-year trailing returns are negative (as they were for much of 2021–2024), demand a clear thesis for why you believe mean reversion will occur before adding capital.

Case Studies

Case 1: iShares MSCI China ETF (MCHI)

MCHI is the flagship vehicle for China equity exposure, launched in March 2011. It holds 559 constituents-a true index fund capturing the breadth of the Chinese market. Its top holdings are familiar names: Tencent (17.45% weight), Alibaba (11.15%), construction banks, and Xiaomi.​

What it represents:
MCHI captures the true diversification of China’s market. It includes both A-shares (mainland listings; 20% of their free float is included) and H-shares (Hong Kong listings), plus ADRs. This blended approach means MCHI’s returns reflect both domestic retail investor sentiment (A-shares) and foreign investor appetite (H-shares).

What investors often overlook:

1. Sector concentration: Consumer discretionary (28%) and communication services (23%) comprise over 50% of the index. A regulatory crackdown on tech or e-commerce directly crushes MCHI. This is not a balanced “China exposure”-it’s a concentrated tech-and-consumer-growth bet.
2. The A-share premium: A-shares (domestic) often trade at 20–30% premiums to H-shares (Hong Kong) of the same company. MCHI’s modest A-share inclusion (at 20% of free float) means it misses this premium but also avoids the downside if the premium compresses.
3. Currency exposure: MCHI is USD-denominated, so yuan weakness drags returns. Conversely, yuan strength boosts returns for USD investors. Many investors forget this currency component when assessing performance.
4. Fee drag: The 0.59% annual fee, while competitive, costs 58 basis points yearly. Over 10 years, this compounds to roughly 6–7% in missed gains.

Check MCHI’s performance on the fund provider’s page to see real-time holdings, sector weightings, and trailing returns.

Case 2: iShares China Large-Cap ETF (FXI)

FXI launched in October 2004, making it older than MCHI. It tracks the FTSE China 50 Index, which includes only the 50 largest Chinese companies traded on the Hong Kong Stock Exchange.​

What it represents:
FXI is a concentrated bet on China’s megacap ecosystem-Alibaba, Tencent, financial giants, and industrial leaders. It’s H-share only, meaning it captures foreign investor appetite and avoids the complications of A-share access.

Performance and behavior:
FXI’s 10-year annualized return is 3.27%, meaningfully lower than MCHI’s 4.96%. This reflects FXI’s higher concentration, larger single-position risks, and higher volatility (large-cap growth stocks tend to outperform in booms and underperform in busts). In 2024–2025, FXI has performed roughly in line with or slightly below MCHI. In 2020–2023, MCHI outperformed as FXI’s large-cap exposure hurt during the tech crackdown.

What investors often overlook:

1. Liquidity bias: FXI’s average daily volume is 25+ million shares versus MCHI’s 2 million. FXI is far easier to trade, which may tempt active traders-a costly approach for most investors.
2. Single-country concentration on concentrated holdings: FXI isn’t just China exposure; it’s “50 largest Hong Kong-listed Chinese companies” exposure. A change in sentiment toward Alibaba or Tencent disproportionately affects the fund. In 2021, regulatory scrutiny on big tech was devastating.
3. The FTSE vs MSCI benchmark question: FTSE China 50 uses different methodology than MSCI China. FTSE is more conservative (smaller constituent list), MSCI is broader. Neither is “better”-they just capture different slices of the market.

Why China ETF Returns Can Diverge From China’s Economic Growth

China’s nominal GDP growth has averaged 8–10% annually for decades. Yet China ETF returns are far more volatile, often negative, and frequently lag GDP growth significantly. Investors are often bewildered by this divergence. The explanation lies in five structural factors:

1. Ownership Structure and Foreign Investor Access

China restricts foreign ownership. International investors cannot freely buy A-shares (mainland listings); access is limited to designated programs (Stock Connect schemes, QFII quotas). H-shares (Hong Kong listings) are freely tradable but cover a smaller subset of the market and often trade at discounts to domestic valuations.

When the Chinese government imposes restrictions on foreign ownership or limits capital outflows, H-shares decline while A-shares may hold firm. An international investor holding MCHI-which includes some A-shares-faces regulatory and liquidity asymmetries that domestic investors don’t encounter.

2. Valuation Multiple Compression

Over the past decade, Chinese equities have been valued at persistent discounts to both developed markets and other emerging markets. The MSCI China Index currently trades at a forward P/E ratio of approximately 12–13x, compared to the S&P 500’s 18–20x and MSCI Emerging Markets’ 13–14x.

Even when earnings grow at China’s GDP rate (8–10%), the P/E multiple can decline, resulting in stock price stagnation despite earnings expansion. This is exactly what happened from 2015 to 2020: Chinese companies’ earnings grew, but stock prices went sideways due to valuation compression. The reverse (multiple expansion) occurred in 2017 and 2025.

3. Policy Risk and Regulatory Uncertainty

China’s government, unlike the U.S., directly intervenes in capital markets. The 2021 tech crackdown (education platforms, ride-sharing, fintech) wiped out $2+ trillion in market value and dragged returns significantly negative. More recently, stimulus announcements and purchases of ETFs by state-owned enterprises have supported prices.

Investors must factor in ongoing policy uncertainty: Which sectors will be regulated next? Will capital controls tighten? Will dividend payouts be restricted? This policy risk premium forces valuations lower than fundamental earnings growth alone would justify.

4. Sector Composition Bias

The MSCI China Index is overweighted in consumer discretionary and communication services (tech, e-commerce, gaming, social media). These are cyclical, high-growth, high-regulation-risk sectors. When sentiment shifts, these sectors crater faster than defensive sectors.

Contrast this with the S&P 500, which has significant exposure to defensive sectors (healthcare, consumer staples, utilities). China’s index tilts aggressively toward growth, amplifying upside in booms and downside in busts.

5. Currency and Capital Flow Dynamics

The Chinese yuan is not freely convertible. When foreign investors worry about growth or regulatory risk, they attempt to repatriate capital, pressing the yuan downward. A declining yuan reduces returns for USD-based investors even if Chinese stock prices stay flat.

Conversely, government stimulus often includes statements about supporting the yuan, which can boost returns for foreign investors even if fundamentals are unchanged. This currency overlay is invisible to most investors but material to long-term returns.

Practical Investor Takeaways (non-advisory)

How to Use Annual Returns to Set Expectations

If you’re considering China ETF exposure, historical annual returns suggest this framework:

• Best case (1-in-10 years): 50%+ annualized returns (2017, 2025 examples) when sentiment shifts and valuations expand. These feel “normal” for China, but they are outliers.
• Base case (typical years): 10–20% returns during growth-friendly environments, or -10% to 0% during headwinds. Most years fall here.
• Worst case (1-in-5 years): -15% to -25% annual losses during crackdowns, stimulus reversals, or contagion from global crises. Expect these roughly once every 4–5 years.

Setting expectations around this range-not the 31% 1-year return or the 5.54% 10-year annualized return-is more honest.

Position Sizing Considerations

China ETFs are not portfolio core positions for most international investors. Consider these conceptual approaches:

• If you believe mean reversion is coming: A 3–5% allocation to MCHI or FXI may be justified if you expect China valuations to normalize and regulatory risk to ease. This is a tactical, time-bound thesis, not a buy-and-hold forever allocation.
• If you want emerging market exposure: A broader emerging market ETF (like IEMG, which includes China as part of a diversified portfolio) may reduce single-country concentration risk. China represents roughly 30–35% of most broad EM indices.
• If you want to reduce China exposure: Vanguard’s VEXC (Emerging Markets ex-China) provides emerging market exposure while eliminating China entirely. This is useful for investors who believe China faces structural headwinds.

When Diversification (EM vs China-Only) Changes the Story

A broad emerging markets ETF buffering China exposure with Indian, Brazilian, Vietnamese, and other exposures will produce smoother returns and better sleep. Individual China ETF allocations are speculative decisions that require conviction.

FAQs

What is the average return of the Chinese stock market?

The MSCI China Index’s average annualized return from 2014 to 2025 was approximately 4–5% annualized when accounting for the full period including the severe 2021–2023 bear market. Over longer periods (20+ years), the average is higher (7–8%) but highly dependent on starting date. Annual returns vary dramatically-from -22% to +54%-so relying on “average” returns is misleading. Check the fund provider’s page (such as BlackRock for iShares MSCI China or iShares China Large-Cap) for real-time performance.

What is the best-performing China ETF?

No single China ETF “wins” across all periods. Over the trailing 1 year (as of late 2025), MCHI slightly outperformed FXI. Over 3 years, FXI has performed better due to its large-cap concentration during the growth recovery. Over 5–10 years, MCHI has performed better. “Best” depends on whether you care more about recent performance, volatility, fees, or liquidity. For most investors, MCHI’s lower fee (0.59% vs 0.73%) and broader diversification make it the default choice.

What ETF has the best 10-year return (how to compare fairly)?

MCHI’s 10-year trailing return was 4.96% annualized (as of Dec 31, 2025); FXI’s was 3.27%. Both underperform the MSCI China Index benchmark (5.54%) due to fees and tracking error. To compare fairly, you must account for (1) the benchmark tracked, (2) the expense ratio, (3) the specific time periods, and (4) the volatility and drawdown experienced to achieve that return. A 5% return after a 50% drawdown is worse than a 4% return with 20% volatility. Always cross-check performance on the official fund provider pages.

What is the China ETF equivalent to the S&P 500?

The closest parallel is MCHI (iShares MSCI China ETF), which tracks the MSCI China Index-the broadest index of large and mid-cap Chinese equities accessible to international investors. However, MCHI is far more volatile, has lower expected returns, and carries more policy risk than the S&P 500. There is no direct equivalent; China’s market structure, regulatory environment, and valuation dynamics are fundamentally different.

Does Vanguard have a China ETF?

Vanguard does not offer a standalone, dedicated China ETF. However, Vanguard provides:

• VWO (Vanguard FTSE Emerging Markets ETF): Includes China as roughly 30% of the portfolio, alongside India, Taiwan, Brazil, and other emerging markets.
• VEXC (Vanguard Emerging Markets ex-China ETF): A newly available option that provides emerging market exposure while explicitly excluding China.

For dedicated China exposure, investors must use iShares products (MCHI or FXI) or other providers.

Final Summary: Rules of Thumb

1. Never rely on 1-year returns to justify long-term thesis. China’s market swings 20–50% annually; a single year tells you nothing about forward fundamentals.
2. Accept that 5-year rolling windows are often negative. China has produced negative 5-year returns in roughly 40% of historical rolling windows. Demand a clear thesis, not just hope.
3. Budget for 40–50% drawdowns every 5–10 years. If you cannot psychologically survive a $50,000 position declining to $25,000 for 1–3 years, China ETFs are not for you.
4. Trailing returns are period-dependent. The 5.54% 10-year return to MSCI China reflects two complete boom-bust cycles. Starting a year earlier or later would have produced entirely different results.
5. Fee drag compounds. MCHI’s 0.59% fee cost roughly 6% in opportunity over the past decade. Consider the cost of each basis point in expenses.
6. Sector concentration is real. Over 50% of MCHI is consumer and tech-regulatory risk is concentrated, not diversified.
7. Policy risk is structural. Unlike Western markets, China’s government directly intervenes. Regulatory surprises are common; build a margin of safety.
8. Rolling returns reveal the true distribution of outcomes. A 5-year trailing return of -3% doesn’t mean the next 5 years will be similarly poor-but it does mean expect wide variance in outcomes.
9. Currency movements matter. Yuan depreciation has often dragged returns; appreciation occasionally boosted them. This is invisible in the price chart but real in your account.
10. Diversification through broader EM exposure may be safer than China-only allocation. If you cannot confidently assert a strong thesis for why China outperforms over the next 3–5 years, broad emerging market exposure with China as one component is more prudent.

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Disclaimer: This guide is educational and not investment advice. The data and analysis presented reflect historical performance and market structure as of February 2026. Past performance does not guarantee future results. China’s equity market is subject to regulatory, geopolitical, and policy risks that could significantly impact future returns. Before making any investment decision, consult with a qualified financial professional who understands your risk tolerance, time horizon, and financial situation. ETF performance, holdings, and fees change regularly; always verify current information with official fund provider pages before making decisions.