Editor's note: The floodgates are now open in China, thanks to the "MSCI story"...

But this isn't the only reason our colleague Steve Sjuggerud is more bullish than ever on the country. While the mainstream media worries about the trade war's potential impact, he remains focused on a few major themes that will unfold in the coming years...

Today's Masters Series essay is adapted from the April issue of True Wealth Opportunities: China. In it, Steve explains why Chinese parents will do whatever it takes to help their kids succeed... the selfish reason behind their efforts... and what you can do to capitalize on this situation before it's too late...

China's '4-2-1 Problem' and What It Means for Investors

By Steve Sjuggerud, editor, True Wealth Opportunities: China

You're stuck in traffic when the panic sets in...

This isn't going to work. Your child isn't going to make it. But being late isn't an option. If you don't get moving, FAST, your son's life will be ruined...

So, you grab your phone and make the call. The police rush to your aid. And within minutes, a cop on a motorcycle is speeding away with your son.

They're not headed to the hospital, though. This wasn't a medical emergency.

No, they're headed toward the testing center. Your son can't be late for Gaokao.

This scenario is real life in China...

Every June, Gaokao brings China to a standstill. Society bends its rules for the event.

Streets are closed. Drivers are banned from using their horns. And drones hover over the Gaokao centers to ensure radio signals can't make it inside.

It's the most important thing in the world for the millions of Chinese students who participate each year. Gaokao can literally make or break your economic prospects for life.

So, what is Gaokao?

It's China's National Higher Education Entrance Examination. But to be clear, Gaokao is not the same as America's SATs.

In the U.S., the SATs play a part in determining college admissions. They are just one of many things that individual colleges use to sort out who gets in and who doesn't. And if one school won't take you, another probably will.

In China, the Gaokao scores are all that matter. They determine not where you go to school... but if you go to college at all.

As a result, just about every part of Chinese education is tailored to the Gaokao. It's the goal you work toward when you first begin schooling. And high scores are the big prize... Some students take the test again, year after year, hoping for results that will get them into a better school.

Fail the Gaokao, and you're out of luck. No further education. And likely no upward economic mobility as a result.

It's "do or die."

Gaokao is what sorts out students for college. But there's another major exam that comes first. It's called Zhongkao, or Senior High School Entrance Examination (HSEE). You can't re-take it... And if anything, it's even more important than the dreaded Gaokao test.

That's because the HSEE determines if your child attends high school. That's right – in China, high school isn't guaranteed. After nine years, Chinese students have to earn their spot in high school. But there's a big catch...

Only 50% of Chinese students will get in to high school – regardless of their specific scores on the HSEE.

If you end up in the lower-scoring half, you're headed for vocational school or a job in a local factory. After that, the path of your life is virtually set in stone.

The HSEE and Gaokao are China's "Stress Test." Passing these tests means everything.

Imagine yourself in the shoes of a typical Chinese parent...

The pressure is immense. The best chance your child has at a successful future is to pass these tests.

And while cheating might work for some parents and kids, for most, it's not the right path. You do not want to be arrested in China for dissent against government policy.

The best solution is to study, a lot. With the help of professionals.

Spending money to improve your child's odds of success is about the best investment most Chinese parents could make. And they're spending like crazy...

This system has created a $398 billion private tutoring industry. And the intense social pressure of Chinese education means it's still growing.

This goes against everything U.S. investors think they know about China. That's because the answer to China's Stress Test is very... capitalistic.

Chinese parents pay for tutors... And the tutors compete to be the very best.

This is not communism. It's capitalism, plain and simple.

The state schools are good. But getting the best education out of the private sector is what determines your child's future. It prepares your kids to do well on their grueling tests... make it into a high-quality university... and impress potential employers down the line.

Again, it's do or die. And that makes education a fiercely competitive market.

There isn't anything you wouldn't do for your children. You want the best for them. But there's a selfish reason you want them to succeed as well... You need them to.

It's China's "4-2-1 Problem."

This is a demographic problem that China is working to solve. It's due to the country's longstanding "one-child policy," which lasted from 1979 to 2015. That policy means that China's population is getting old, fast.

Today, each young Chinese worker faces the likely prospect of supporting two parents and four grandparents as he or she gets older.

That means ensuring your child's success isn't just a matter of personal pride. As a parent in China, there's a good chance that your retirement depends on your child doing well on the Gaokao and Zhongkao tests. That's true even for China's expanding middle class.

As China has changed from a poor country to the world's second-largest economy, it hasn't set aside enough money for its retirees – yet.

And even though the Chinese save money at a much higher rate than Americans, surveys show most Chinese adults still worry they won't have enough to retire.

They're right to be worried. The threat for China is dire...

According to the World Bank, pension fund assets in the U.S. are roughly 135% of GDP. In China, the number is just 1.5% of GDP. (The World Bank defines a "pension" as "any plan, fund, or scheme that provides retirement income.")

China doesn't have enough money set aside today to support future retirees. And the young people can't pick up the slack on their own...

In China, young people are supposed to look after their parents and grandparents. It's expected. (Actually, it's more than expected – for example, Shanghai recently passed a law requiring adult children to visit their parents in nursing homes.)

But the country doesn't have enough young people working to pay for the old people, thanks in part to its former one-child policy.

The total numbers are staggering... By the year 2050, 330 million Chinese people will be over age 65. That's almost a quarter of the population.

So trillions of dollars need to be saved, starting now, to head off this problem.

Not only does China need to increase the money going into pension assets, it also needs to increase the return on those assets. It's the only way China can resolve its pension crisis quickly enough. And it needs to happen – now.

So where can you go for a higher return on your investments over the long run? The stock market...

That's exactly what China is planning to do. It has authorized one of its two main pension funds to invest up to 40% of its assets in stocks. But this fund has only invested about half that amount so far. It's a similar story with the other pension fund.

And that means huge growth potential as China races to increase its pension assets...

Research firm KPMG predicts China's two main pension funds will have more than $3 trillion in assets by 2025. If they invest just one-third of that money in the stock market, that's $1 trillion headed into stocks by 2025.

This is going to happen. It has to for China to solve the 4-2-1 Problem. As much as $1 trillion from Chinese pension funds should head into stocks by 2025.

Of course, that kind of massive money shift will be a huge tailwind for the Chinese market. It'll create a steady stream of buyers, consistently helping to push prices higher.

This is one more major reason I'm bullish on China over the next few years. We have another trillion dollars soon headed into Chinese stocks... The smart bet is to get your money there first.

Good investing,

Steve Sjuggerud

Editor's note: If you've read the recent headlines about the trade war, you might think Steve has it all wrong about China. That's why he decided to hold an emergency briefing this Thursday, May 30, at 8 p.m. Eastern time. Steve will address all your biggest questions... and explain why he was blown away by what was actually happening on the ground during his latest trip to the country. Save your seat for this free event right here.