Chinese companies present a potentially huge opportunity for investors, but the market in China carries unique risks and challenges that bear consideration. Here is how to invest in shares of Chinese companies and exchange-traded funds (ETFs) available for trading in the U.S.

Buying individual companies

A woman standing in front of a wall with a drawing of a bag of money inside a thought bubble.

Image source: Getty Images.

Investing in China can be a real trick as companies there carry various share classes that may or may not be accessible to the average investor outside China. For example, A shares are shares of a Chinese company that are only available to investors in mainland China. H shares, on the other hand, are shares of those companies that trade in Hong Kong and are available to anyone -- assuming your broker allows you to trade on the Hong Kong exchange.

The easiest way to invest in Chinese companies, though, is to buy shares that list on an exchange here in the United States. Here is a list of the largest Chinese companies available with market capitalizations over $10 billion:

Company

Market Cap

TTM Price-to-Earnings

What the Company Does

Alibaba 

$389 billion

61.5

China's largest e-commerce network

PetroChina 

$205 billion

29.9

An integrated oil and energy company

China Life Insurance 

$106 billion

29.9

A life, health, and accident insurance company operating in mainland China

China Petroleum & Chemical 

$94 billion

11.0

An integrated oil and energy company

Baidu 

$77 billion

48.9

China's largest internet search engine

JD.com 

$61 billion

(154.1)

A leading Chinese e-commerce platform

NetEase 

$41 billion

21.3

A leading online multimedia and services provider

China Telecom 

$36 billion

19.1

Wireline and mobile telecom services provider

Ctrip.com 

$27 billion

760.6

Travel and accommodation booking website

Weibo 

$19 billion

130.5

A Chinese social network and video gaming platform

Huaneng Power 

$12 billion

15.0

A leading utility company

Yum China Holdings 

$14 billion

27.2

KFC, Pizza Hut, and Taco Bell in China and the largest restaurant chain

New Oriental Education & Technology 

$13 billion

49.6

A private education services provider

China Eastern Airlines

$13 billion

11.0

Airline and transportation services

Aluminum Corporation of China 

$12 billion

98.2

Chinese manufacturer of aluminum products

China Southern Airlines 

$11 billion

12.7

Airline and transportation services

ZTO Express 

$10 billion

29.9

Delivery and logistics provider in China

Data sources: Yahoo! Finance. TTM = trailing 12 months.

In addition, some companies, such as China's largest social network owner, Tencent Holdings, are available on over-the-counter markets. In all, some 300 Chinese companies can be traded in some way stateside. The work in filtering through those can be difficult, but an easier option also exists.

Chinese stock ETFs

There are dozens of Chinese ETFs that have popped up over the years, covering everything from debt to specific industries operating in mainland China. If you're looking for broad exposure to the Chinese stock market, though, here is the list you should start with:

Fund

Fund Total Net Assets

Expense Ratio

Fund Composition

iShares MSCI China ETF (NASDAQ:MCHI)

$2.58 billion

0.61%

The fund holds shares of Chinese companies that are available to all international investors.

PowerShares Golden Dragon China ETF (NYSEMKT:PGJ)

$186 million

0.70%

The fund is composed of Chinese companies whose shares are listed on a U.S. exchange.

DB X-Trackers Harvest CSI 300 China A-Shares ETF (NYSEMKT:ASHR)

$487 million

0.65%

The fund holds A shares of the largest 300 Chinese companies that only trade on a Chinese exchange.

Data sources: iShares, PowerShares, and Deutsche Bank.

Takeaways for investors

When investing in Chinese stock ETFs, investors have three basic choices: stocks listed on Chinese stock exchanges, international investor shares, and companies specifically listed on U.S. exchanges. The DB X-Trackers fund, which holds Chinese exchange-listed companies, has had the wildest performance due to the bubble-and-bust China market of 2015. Because of the extra risk involved, owning shares in China's fast-developing and changing mainland economy may not be the best route to take for the faint of heart.

MCHI Chart

Data by YCharts.

Of the two funds that own shares of companies listed outside of the Chinese stock exchanges -- iShares MSCI China ETF and PowerShares Golden Dragon China ETF -- PowerShares Golden Dragon and the companies it owns listed in the U.S. have fared better. Some, but not all, of that has to do with the extra risk with fluctuating foreign currency exchange rates. Listing on major U.S. exchanges has also helped moderate the roller-coaster movements that investing in an emerging economy can present.

For investors who want to bet on the future of the Chinese economy, there are plenty of options. There are more individual companies than ever available for trading for those of you who don't mind the homework, and a myriad of ETFs can help you get broad exposure to the whole market. Whichever option you go with, be prepared for a roller-coaster ride as China's economy continues to modernize.

Nicholas Rossolillo has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Baidu. The Motley Fool recommends Ctrip.com International, NetEase, New Oriental Education & Technology Group, and Weibo. The Motley Fool has a disclosure policy.