Counting Chinese Stocks as Stocks

Should mainland Chinese stocks be included in major indexes of emerging markets? I don’t really know how you’d go about answering that question from first principles. Like you could say “Chinese companies tend to have [better][worse] corporate governance than companies in other emerging markets,” or “Chinese markets tend to have [better][worse] liquidity,” or “the Chinese government tends to be [better][worse] at upholding the rule of law,” or of course “Chinese stocks tend to go [up][down] more than other emerging-market stocks,” or whatever, but I am not sure what any of those things have to do with anything. Or you could say “China exists, and Chinese stocks exist, and so a list of all the stocks that exist should include Chinese stocks”; I am more sympathetic to that argument, but it doesn’t really tell you much about whether to include those stocks in the category of “emerging markets.”

A stock market index is mostly a summary of a set of social facts; the “emerging market index” is a list of the sorts of stocks that funds that call themselves “emerging markets funds” want to invest in. If every “emerging markets fund” invests in Chinese stocks, then the index should have some Chinese stocks; if none do, then it shouldn’t; if half do, then … I dunno? Naively I might say “if half do, then half of them should benchmark themselves to a China-inclusive index and the other half should benchmark themselves to a China-exclusive index,” but I suppose that sounds disappointingly relativistic; surely every fund manager shouldn’t get to choose her own index. (Or should she?)