Regulators have lifted some of the restrictions on foreign funds share prices have jumped by around 20 per cent in the last six weeks.
China's market was one of the world's worst performers last year but that could be set to change.
Correspondent: Karon Snowdon
Speakers: Shaun Rein, Managing Director, China Market Research Group in Shanghai; Raymond Yeung, ANZ Bank's Senior Economist for Greater China, Hong Kong
SNOWDON: It's been a five year bear market in China and a long way from the 30 to 40% boom in share prices back in 2005. However, large foreign institutions are being encouraged to put money into Chinese shares. Shaun Rein is the Managing Director of the China Market Research Group in Shanghai.
REIN: These larger companies will be more professional. The hope is that they will bring more transparency into the market, but also that they will invest and keep the money in China for a long period of time. They don't really want individual foreign retail investors to come in, they want large institutional mutual fund houses.
SNOWDON: But why would they see China's stock market as a good bet?
REIN: Over the last three years, China's stock market has been constantly down, under to 1800. But in the last month and a half, you've seen a bull market. The Chinese equities have risen over twenty percent, since Xi Jinping was named the next President of China. And the foreign investors want to come in and get a piece of that investment pie.
SNOWDON: Also optimistic is Raymond Yeung , the ANZ bank's Senior Economist for Greater China based in Hong Kong. He forecasts an 8 percent economic growth rate this year, supported by China's accelerating urbanisation.
YEUNG: The worst has gone. I think the best piece of evidence is to look at the iron ore price. That has rebounded by 87 dollars last year, to now, close to 160 (dollars). So, the overall investment sentiment has improved significantly and that's also been flagged in the Chinese stock market - the index over the past few weeks too.
SNOWDON: Big infrastructure developments will get the full go ahead after the March change of leadership, along with efforts to boost consumption. But that rebalancing of the economy towards more domestic spending will take longer to filter through to GDP, says Raymond Yeung
YEUNG: We're expecting over the next few years, perhaps by 2015, the household consumption share of the GDP will be up four percentage point, from the present thirty-three percent, to thirty-seven percent in three years' time.
SNOWDON: Foreign investors are gearing up for a better year and eyeing China's wealthier consumers as "the next big thing."
Government policy changes are encouraging them into the share market. The one billion dollar share investment cap for a single foreign fund has been lifted and higher quotas allowed under the regulated programme for Qualified Foreign Institutional Investors.
Shaun Rein says while foreigners hold a tiny fraction of Chinese listed shares, the improving economy will attract more.
REIN: Ya, I'm actually one of the more bullish people on China's economy. What you've seen is inflation at around two percent in 2012. The government has really restricted some of the potential bubble possibilities in the real estate market. So what you're seeing is 55 percent of GDP growth in 2012, came from consumption. So the government is really pushing more towards the healthy, sustainable economy that's based on consumption, rather than on the investment and export-oriented economy, that it's been too much based on, over the last decade.
So I think that the economy's going to continue to grow and out-respond those analysts' expectations.