If investors want to reap returns from China’s booming economy, buying shares in multinational corporations is the safest way to go, says noted author and Burton Malkiel.

Speaking at the Trade Tech Canada 2008 conference in Toronto on Thursday, Malkiel, Professor of Economics at New-Jersey based Princeton University, said “China’s volatility makes Brazil look stable, which is why investors can benefit from a mixed strategy, that involves indirect investments.”

By investing in transnational retail companies such as Nike or Louis Vuitton, which receive a large portion of their revenue from China operations, an investor can realize the returns from the emerging market, with a high amount of transparency, since all annual reports adhere to Generally Accepted Accounting Principles.

Buying “H” and “N” shares, which are shares of mainland Chinese companies approved for trading on the Hong Kong Stock Exchange or the New York Stock Exchange, are another way to break into the market, since individual foreign investors are prohibited from trading “A shares” directly in local markets, such as the Shanghai Stock Exchange.

While China has been somewhat affected by the global credit crunch, Malkiel remained bullish on the country’s potential for future growth. Since Premier Deng Xiaoping reformed China into a capitalist country in 1983, GDP has risen at a real rate of 10% a year, from US$1.31 trillion in 1985 to US$3.58 trillion in 2007. Malkiel predicts GDP growth will not fall below 7% in 2009 and will experience a short turn around.

“Besides the major cities, like Beijing and Shanghai, the centre and west of the country are still dirt poor,” said Malkiel. “Improving the middle and western regions are a major focus of the government and this is where economic growth will occur.” Along with the U.S., China has its own billion dollar plan to ensure stability. The Chinese government will pour US$586 billion into infrastructure and tax cuts to keep its economy growing. In the next few years, Malkiel says, domestic demand for goods and services should also increase. In 2007, domestic consumption made up US$1.24 trillion dollars or of China’s GDP or 34.64%, whereas in the U.S. consumption consumed 72% of the country’s GDP pie. Exports he believes will also grow, but not at the same exponential rate.