With a stimulus-fuelled boom in domestic demand altering the composition of China's breakneck growth, investors are increasingly looking at fresh angles to buy the dragon.

Gaining exposure to China's growth story can be a tricky prospect — China's currency is still largely controlled by the state, its bond market is small and suffers from a weak legal structure, and Chinese equities have been a poor indicator of the country's economic success.

The Shanghai Composite index remains the second-worst performing major equity market in the world this year, after Greece, despite gross domestic product growth steaming ahead at 11.3 per cent in the first half of 2010.

So it comes as little surprise that the investment community is looking at alternatives to gain China exposure from resources and currencies to debt and non-Chinese equities.

Copper

A long-time China play has been through commodities and within the commodity basket, copper has been the traditional choice.

In recent years it has been a decent proxy for Chinese industrial output, and that looks set to continue.

In 2000, China bought 12 per cent of the world's copper. In 2009 that had risen to 40 per cent, according to research from Macquarie. Similarly, lead is a substance in short supply but in high demand in China, says Kevin Norrish at BarCap.

Morgan Stanley's China commodity pick is coal. China's growing demand has seen it turn net importer in recent years, while neighbouring producer countries, such as Mongolia, are looking into new projects to exploit that rising trend.

In the agricultural sector BarCap favours corn. As corn is used both for human consumption and animal feed, it is a good proxy for changing dietary habits.

"China has for many years been a net exporter of corn, but it is now starting to flip between imports and exports ... will eventually see China shift to being an importer of corn on a structural basis," Norrish says.

For China followers, commodities have a strong appeal as veteran investor Jim Rogers explains: "[They] are the best way to gain Chinese exposure, because one does not need to worry about central banks, corporate governance, financial statements, etc, and China must buy most commodities."

By contrast, corporate debt in China can pose major challenges for investors with recovery rates following default almost impossible to gauge.

"When it comes to creditors' rights for corporate bonds, China ranks the lowest in Asia," says Esther Chan, debt portfolio manager at Aberdeen Asset Management. "The bankruptcy process for creditors is unproven, and past experience doesn't give investors much comfort."

Expensive

Meanwhile, the few, well-established Chinese companies that issue debt are starting to look expensive, say analysts. Parkson, the department store chain, has seen yields drop from over seven per cent to about 4.5 per cent. And less direct plays, such as bonds issued by Brazilian steelmakers, are starting to lose their China bias as the Brazil's domestic growth story takes off.

Instead, Chan now looks for China exposure through bonds of property companies.

In the currency markets, the Aussie dollar remains the most favoured China play. It is well plugged in to the development of China's domestic economy. Australia provides the raw materials needed for construction and infrastructure.

For equity investors there are still some ways of buying into domestic growth, even in western markets, but investors are looking at individual companies.

Recent research from Jonathan Garner of Morgan Stanley into macro-economic shifts in China points to a number of big multinational stocks that look set to benefit from rising wages and changing spending patterns in China.

Those are mainly globally established brands, such as Nike, Yum! Brands, Unilever, H&M and L'Oréal, that target middle-income consumers.

The potential for these companies is unprecedented. Garner projects that by 2020, there will be more households with a disposable income of over $10,000 in Bric countries than in the US and the euro zone combined, with most of that growth coming from China.

The message from the investment community seems to be that, while direct exposure to Chinese growth through the stock market remains tricky, there are still plenty of ways to buy the dragon.

— Financial Times