My subscribers have heard me say time and again, China is the mother of all investment themes right now. No matter how you slice it -- population size, demographic trends, economic reforms, corporate growth, etc. -- the China Miracle is real.

Today, I’m very excited to share a few of the tremendous wealth-building opportunities made possible by China’s historic growth and show you how to profit from them.

Every major trend is either driven by China or, at minimum, heavily influenced by it. This is true for energy, commodities, technology, bonds -- even real estate.

As this land of one billion people modernizes and makes the leap to capitalism all at the same time, I believe we will profit from some of the best investing opportunities of our lifetimes.

Miracle is a strong word, I know, but it’s the right word to describe what’s happening today in China. As this once-great land modernizes and shifts to a market-driven economy, the staggering economic growth taking place there will continue for the foreseeable future. The profit potential for investors who truly understand what’s happening inside China is equally staggering.

	The Miracle by the Numbers Let’s start by taking a look at some quick facts that exemplify China’s economic emergence • China’s economy has been growing at a rate of 9.3% per year during the past 25 years, which is three times as much as the growth rate in the U.S. • China is the world’s biggest consumer of steel, cement, coal, copper, gold and even meat. It is the number-two crude-oil consumer. • China is also the world’s biggest market for mobile phones, with 450 million handsets and cellular phone accounts. • Since 2002, China is the driving force behind the big commodity boom. Prices of oil, copper, gasoline, aluminum and other raw materials more than doubled. • The central banks of China, Hong Kong and Taiwan -- which make up the Greater China region — combined, have the largest foreign reserve in the world.

Let me offer our results from the past year as just a bit of proof. Of the 26 total stocks we owned during 2006, 21 were winners. That's an 80% success rate, which I doubt few other investors can match. We saw gains of 97%, 80%, 79%, 51% and more. In 2007 we owned 26 stocks with a 62 % success rate”! We had five stocks more than double and our portfolio was up 35.6 % for the year while S&P was up only 3.5 %.

I tell you all this not to brag, but to show you China’s potential is real, and to point out that while we're profiting from great opportunities, we're also being smart about keeping our risk low.

The reason we've been so successful is that we're investing in the dominant themes of the China Miracle. Our unique insights, firsthand knowledge and boots-on-the-ground approach help us identify both the themes and the stocks best-positioned to benefit from them.

5 Key Trends for 2008

Before we dig in detail, let me briefly tell you about the top China trends I believe we will profit handsomely this year.

1. China’s exploding private sector. China has put out the welcome mat for new small businesses, waking an entrepreneurial spirit that has been buried under decades of Communist rule. We enjoyed some of our biggest winners of 2007 with such companies, and today I want to introduce you to an entrepreneur I think can deliver us another huge winner.

2. China’s consumer spending boom. Thanks to China’s growing middle class another western trend is about to flood the streets of China…credit cards. We’ll talk about my top play for profiting from the Chuppies’ consumption craze.

3. China’s insatiable demand for natural resources. You may be quite surprised with what I have to say about the best way to play commodities today. Read on for an important warning, and details on a big opportunity.

4. China’s increasing role on the world stage. The countdown to the 2008 Beijing Olympics is on.

5. China’s wireless market -- the largest mobile phone market in the world with over 450 million subscribers -- and growing.

I truly believe your China Strategy is critically important to your financial success over the next 12 months.

Let me tell you why…

China’s economy (which we hear a lot about) is still red-hot. In the past year, it's grown over 11% -- more than three times the U.S. economy -- leapfrogging France and Great Britain to become the world's fourth-largest economy. What you don't hear as much about is that a lot of this is coming from the private sector.

As you may know, China's economy was entirely state-controlled up until a decade ago. However, the percentage of the economy controlled by the private sector is growing so fast that the government has had a tough time keeping track. It has more than DOUBLED in the past 10 years, presenting smart investors with street-level knowledge and some great investing opportunities. Let me show you why…

China’s Exploding Private Sector

China’s private businesses will continue to grow rapidly in 2008 as market reforms allow the entrepreneurial spirit that has been buried under decades of Communist rule to once again flourish. And that’s exactly how it should be. The Chinese people are the real drivers of their country’s economic miracle.

In fact, China has put out the welcome mat for entrepreneurs. Today, China has nearly 24 MILLION small independent companies -- and that number is growing 20% a year.

Much of this energy is coming from so-called sea turtles. These are U.S.-trained Chinese nationals who are being lured back home by tax breaks, high-tech business parks and government perks.

People like Zhang Xin, a Goldman Sachs alum like me, who became Beijing’s top luxury real estate developer. Or James Liang, a former Oracle techie who turned a $250,000 investment into an online travel giant worth $2 billion.

I personally visit many of these new entrepreneurs in their own offices. I walk around the markets and malls in the provinces. My team and I troll the Mandarin- and Cantonese-language websites. In all the throbbing, innovative energy, there’s a doubler, maybe a 10-bagger, waiting to be uncovered for my China Strategy subscribers

Most people don’t realize that China has a rich entrepreneurial tradition. This is a strong source of pride for the Chinese. For most of its long history, China was one of the great commerce nations of the world. It has been buried under a repressive regime for the last 100 years, but through my contacts and visits there, I have no doubt the entrepreneurial spirit and the desire to succeed economically remain a strong part of the Chinese people today. As the government continues to loosen its grip, they're getting an opportunity to succeed and they're making the most of it.

The best privately owned and operated companies are thriving and taking market share away from the big, state-owned manufacturing companies left over from the Communist economic model. Under the old Communist system, a company’s purpose was simply to provide employment, so they were never concerned with the bottom line. Most are bloated, inefficient and often corrupt, so it’s no wonder that the percentage of the economy controlled by state-owned enterprises has fallen dramatically over the last 10 years from more than 70% to less than 40%. (We’ll talk more about which state-owned enterprises to avoid in a later chapter.)

Because the best private companies in China are enjoying such tremendous growth, many are now big enough to be publicly traded, which is great news for us. We already own some of the best. To get more information on which china IPO’s we’re buying, click here. There will be more to come in 2008, and I’ll be watching closely for our next great opportunity.

I should warn you that a growing number of smaller Chinese companies are also getting listed, though many are doing it through less reputable ways like on the pink sheets. These companies are very risky, and I recommend you stay away from them. We minimize our risk in China Strategy by investing in recognized and established Chinese industry leaders that provide the best opportunities. China’s climate favors big businesses, and it’s just plain smart to stick with those that are number one or two in their industry.

	Boots on the Ground Finds Our Next Doublers When I vowed to help my American friends make their fortunes from the China Miracle, I knew I had to do so from the very streets of China. You see, I am no China cheerleader. I know that while it is quite possible to make a huge fortune in China, it is easy to lose a fortune unless you are careful. My network of contacts, spread throughout China, is handpicked to provide me with priceless on-the-ground information. Combined with my own American-based research and my own extensive journeying through China, I am able to sort fact from fantasy, take risk out of the equation, and give you investment opportunities that double. Unless you are ready to learn Cantonese, Mandarin and Shangainese and move to China yourself, there is no better way to get this invaluable firsthand intelligence and analysis. Click here to learn more.

American businesses have profited from China twofold: 1) outsourcing manufacturing positions to China has increased corporate bottom lines, and 2) reaching out to the purchasing power of the “billion-three” -- perhaps the greatest untapped market segment on the planet -- by opening retail stores throughout China.

In this report, we’ll take a look at which U.S. companies have successful operations in China, and which ones do not. All kinds of companies from GE to Pizza Hut have a winning China strategy that’s pumping up their profits. And as you’ll discover, there are a few big-name companies with surprisingly unclear China strategies. But first, let’s discuss the winners:

Yum Brands: Number-One in the World’s
Greatest Growth Market

The devil outside Pizza Hut was drawing an excited crowd. “Special!” he shouted, “Nine-inch pizza! Deep sea eel pizza! Just $8!”

People were lining up excitedly. The horned devil was dressed in a Pizza Hut uniform, and inside the waiters and waitresses were dressed like witches. Across the street, the Kentucky Fried Chicken storefront glowed and throbbed like a casino.

Welcome to Halloween night in downtown Xian, central China. The wait outside Pizza Hut is 25 minutes, but once inside, you’d recognize the Buffalo wings and even the costumes.

(But take my word on this: Steer clear of that eel pizza.)

Unlike many companies that claim to have a China strategy but not much business to show for it, Yum Brands (NYSE: YUM) -- the parent company for Kentucky Fried Chicken, Pizza Hut and Taco Bell -- is the number-one restaurant chain operator in China.

Dining out has always played a big part in China’s food-centered culture. A survey by Horizon Research Group found that spending on food grew faster than any other expense among the people in Shanghai in 2004. As incomes rise, eating habits change, and consumers are willing to try new foods. Over 100 million Chinese families that survived on hand-to-mouth subsistence as recently as 15 years ago can now afford to dine out at least once a week at a mid-priced family restaurant. Increasingly, Kentucky Fried Chicken (KFC) has become the preferred restaurant of choice for many Chinese families on their weekly night out.

KFC has more than 1,500 restaurants in Mainland China, and the average outlet produces $1.2 million in sales each year, more than the $900,000 per U.S. outlet. A large part of KFC’s success is that it offers menu items that cater to local Chinese customers. In China, this restaurant known for its American Southern roots has a menu that includes sides of bamboo shoots and lotus roots in place of coleslaw, which never caught on stateside. Soup and rice porridge are offered during the winter months. And there is also a twister sandwich based on Peking duck, blending chicken with scallions and plum sauce.
All in all, the menu at KFC in China is 80% different from the U.S. menu. Although those who want the Colonel’s 9-piece Original Recipe can certainly find it, most Chinese customers opt for lighter offerings.

Like KFC, Pizza Hut has also adapted to local consumer taste in China. For instance, the restaurant offers imitation crab as a pizza topping choice. It may not sound too appetizing to us, but it works there. Pizza Hut is gaining widespread acceptance in China as a popular mid-priced Western-themed Italian family restaurant chain, similar to Maggiano’s in Los Angeles or Carmine’s in New York City.

Pizza Hut and the American Dream

But Yum’s success in China is more than just being smart about the items they offer on their menus. The company understands that its restaurants symbolize so much more.

My four-year-old daughter, Rachel, who grew up on food from Italian restaurants with a Zagat rating of 20 or higher, usually doesn’t care about the food at Pizza Hut. While visiting the ancient Chinese city of Xian, however, she asked me to take her to the Pizza Hut near our hotel. She wanted to eat there because it represented a familiar piece of life back home.

In the same way, Pizza Hut is viewed as a part of the American consumerism lifestyle that the emerging middle class in China aspire to. For many, eating a meal at Pizza Hut is the closest they will get to experiencing the “good life in America” that they see in movies. For affluent urban customers, Pizza Hut is often the restaurant of choice to celebrate Western holidays, such as Christmas and Valentine’s Day.

Yum is successful in China because it combines the speedy efficiency, cleanliness and trendy image of Western fast food with a willingness to adapt to local tastes. That’s why the company is opening a new restaurant every day in China.

I’m targeting a double in YUM shares over the next three years. Peking Chicken for lunch, anyone? To get my exact China Strategy buy instructions, click here.

Entrepreneurs Cashing in on Consumers

China, too, has its Bill Gateses, Warren Buffetts and George Soroses. Their names include Jason Jiang, Li Ka-shing, Rong Yiren, Bill Ding, Wang Lei Lei and many more. I’d like you to meet a few of them -- because they can make you rich.

Did you miss Bill Ding’s 10,000% bonanza? Wielding nothing more than a Bachelor’s degree and an instinctive feel for what China’s new middle class wants, Ding created a company that sold novelty ringtones and horoscopes.

His company, NetEase, traded under $1 on the NASDAQ for most of 2001 -- then it was delisted.

But then Ding went for broke, gambling on an unproven wireless billing platform and sinking millions into electronic game development. No one, not any analyst on Wall Street, not any one who hadn’t actually met Ding and understands what’s possible in China, would have backed him.

But NetEase turned out to be the best performing NASDAQ stock of 2003, rewarding investors who bought at 64 cents with a 10,000% gain! Following my publicly available advice, investors in Bill Ding’s NetEase could have made 25% in just 6 weeks.

Going Up!

Let me give you another example of our street-level advantage.

Let’s stand in the lobby of a brand new high-rise as a crowd of businessmen and women gather at 8:30 a.m.

They are politely interested in you, of course, but they are utterly transfixed by the elevator doors. We quickly understand why.

A young entrepreneur, Jason Jiang, was waiting for an elevator just like this a few years ago. Elevators are often slow in China, and Jason realized he could install -- right on the elevator doors -- liquid crystal displays showing ads for all the luxury items that Chinese business people are working so hard for.

Today, there are 74,000 of Jason’s screens in dozens of Chinese cities -- and Jason, worth over $700 million now, has just added another 25,000 displays. His displays light up subways, buses, taxis and mini-marts all over China.

A gimmick? No -- advertising is a real business, and Jason is the first person to crack the China advertising market wide open. While Westerners see maybe 350 ads a day, the unjaded eyes of China’s new urbanites still see probably fewer than 30. That’s why China Strategy subscribers doubled their money in 10 weeks by investing in Jason’s company -- and they did it right here on the New York Stock Exchange.

Should you invest in Jason’s company?

The stock is up 123% since I started following it in China Strategy, and I expect to keep right on going. Imagine being able to invest in America’s father of advertising, David Ogilvy, in the 1950s. You are on the ground floor of a burgeoning media empire and you are going up, my friend.

I’m excited about the opportunities we have to build our wealth right along with China’s new breed of entrepreneurs. My China Strategy readers have enjoyed tremendous success. I invite you to join us today.

China’s growing energy demand has been driving the worldwide run-up in oil, gas and coal prices over the past several years. As the second-largest consumer of crude oil (the U.S. is number-one), China’s oil imports grew 50% between 2002 and 2005. Although that trend flattened out recently because of state price controls, in the long run, energy remains an important bottleneck to economic growth, and a major part of our China strategy.

Coal: A Real Opportunity

As oil prices climb higher, cheap alternative energy has become a big topic of interest. While investors talk about solar, wind and nuclear energy alternatives, they tend to do so from a pie-in-the-sky perspective. We’ve been able to make money with one solar play—Suntech Power (NYSE: STP)—but when it comes down to it, these technologies are still too expensive and underdeveloped to deploy on any meaningful scale. The truth is that good old-fashioned coal remains one of the cheapest and most efficient ways to produce energy. Coal has been around for hundreds of years and was the main energy source for the Industrial Revolution of the early 19th century. Despite its widespread usage over the past few centuries, there is still enough coal in the world to supply energy for at least the next 100 years—more than twice as long as oil or natural gas. This supply is one of the reasons why the price of coal has remained low and why it now has some room to run.

The use of coal is the standard across China. The country is the world’s biggest producer and user of coal, which accounts for 61% of its power generation. I expect China to keep the title of world’s biggest producer and user of coal in the years to come. China’s energy demand grew by a staggering 8% in 2006, nearly four times the 2.4% annual growth rate for the rest of the world. Because of China’s vast coal reserves, the fossil fuel was the natural choice for the main source of energy to run Chinese power plants and drive its economy. In order to fuel its fast-growing economy, China must increase its number of power generators. Every week, the country builds the equivalent of two 500-megawatt coal-fired plants. By 2030, China’s coal-fired electricity generation will more than triple. It’s going to require a huge amount of coal to fire all of these new power plants, so you can see how important coal is to China’s economic development. And we haven’t even talked about all of the other industries in China that use coal—the country’s sizzling-hot steel industry is also a big coal consumer. By 2020, China will account for 40%—or almost half—of global coal consumption, according to the International Energy Agency estimates. In fact, China’s coal prices have increased almost threefold over the past five years.

Although China has a large reserve of coal, its main coal production sites are concentrated in several regions: Shanxi, Shaanxi and Inner Mongolia. However, a shortfall in railway capacity resulted in a shortage of coal in major faraway cities like Beijing, Shanghai and Guangdong, where economic growth is thriving. As a result, China became a net importer of coal for the first time in the first-quarter of last year. The country imposed a 5% tax on coal exports to help secure domestic supplies. In addition, taxes on coal imports were cut to zero on June 1, 2007. As a result, the imbalance between supply and demand led to higher coal prices. For example, coal prices at Qinhuangdao, China’s biggest coal port, have increased 35% from a year ago to a record of 564 yuan or $75 per ton.

Right now, the best way to profit from China’s rising energy demand is to own a major Chinese coal producer. That’s exactly why I’m recommending Yanzhou Coal Mining (NYSE: YZC) this month. Let’s get right to the details on how this company is going to profit for us.

Yanzhou Coal Mining, a leading coal miner in Shandong, Eastern China, not only supplies coal, but also owns a large stake in railroad assets. The company is organized into two operating divisions—coal mining and coal railway transportation. It has six coal mines in China, as well as a regional railway network that links these mines with the national railway grid.

Yanzhou Coal’s main products are high-quality clean coals, which are suitable for use in large-scale power plants. Domestic sales of its coal products are concentrated in Southern China and Eastern China— especially in Shandong Province. Twenty-one percent of its total sales are from exports, mainly to East Asian countries like Japan and South Korea—two of Yanzhou Coal’s largest overseas markets. Yanzhou customers are power plants, metal mills and chemical plants (not private citizens).

As an alternative energy stock in the world’s biggest market, this China Strategy holding truly shines as a top pick. I expect us to double our money over the next year. Please sign up today for my very latest buy advice.

Sinopec: The Oil Race Is On

Skyrocketing gasoline prices are certainly drawing a lot of attention -- and outrage -- here in the U.S. But in China, gas prices are still regulated by the government. That has been good for consumers there, who have been protected to some degree from higher oil costs. But it’s been bad for refiners, who are forced to sell gasoline at a loss. But that’s about to change, which is why I now recommend that you buy Sinopec (NYSE: SNP).

The company’s official name is China Petroleum & Chemical Corporation, but everyone refers to it as Sinopec. It’s the largest oil refiner in Asia and one of the three giant state-owned enterprises (SOEs) spun out of China’s Oil Ministry. The stock is listed in Shanghai, Hong Kong, New York and London. In addition to being the largest operator of oil refineries in Asia, SNP is the top distributor of gasoline and other oil products in China. It is also the second-largest producer of crude oil and natural gas in China (after PetroChina).

Sinopec is involved in everything from finding oil to operating gas stations throughout China, making it what’s known as a vertically integrated energy giant. Lately, however, the Chinese government decided to have SNP increasingly focus on mid- and downstream operations such as oil refining and product marketing. The government is having another oil SOE, PetroChina, focus more upstream on exploration and production of crude oil, and CNOOC (which I also recommend) is taking the lead in working with foreign governments and companies to find and acquire more oil.

China’s astonishing economic growth has led to accelerating demand for crude oil and refined products such as gasoline, jet fuel and petrochemicals. China is already the world’s second-largest consumer of oil after the United States, yet on a per capita basis, each Chinese person consumes an average of only 1.7 barrels of oil per day versus 22 barrels a day for every American. As China continues to grow, we’ll see that gap narrow thanks to increased Chinese consumption of oil products.

Sinopec operates over 30,000 gas stations in China, which is 40% of all stations. It also has a reputation for offering higher-quality gasoline than PetroChina.

Despite the company’s dominant position in Chinese oil products, Sinopec loses money selling gasoline in China. As I mentioned earlier, the government imposes price controls on gasoline, and that has capped the company’s profitability in downstream operations like retail. For instance, on a recent visit to China, I saw gas stations in Beijing selling 90 Octane unleaded gasoline for only $1.90 per gallon. That same gas was selling for $2.50 here in United States -- a full 30% higher.

To get my most recent buy advice on this integrated oil monopoly, please be sure to check our subscriber-only website.

Power and Privilege

The next company I’d like to tell you about is 51%-owned by China Huaneng Group, one of China's five major power groups and a state-owned enterprise. As the largest power producer in China, this company fits all of our criteria for a good SOE. It's well-run, it's operating in a very high-growth industry, and it's backed by China's government.

The chairman of this company is Li Xiaopeng, the son of Li Peng, the leading princeling in China during the 1980s and 1990s. Even though Li Xiaopeng was born into a privileged family, he didn't become chairman of the company based on his connections alone.

In fact, Li Xiaopeng has more than proven himself capable. He's been a senior manager with this China Strategy company for 16 years. During his time at the company the success has been unparalleled. The company went from an unreliable and relatively small provider of electricity to become a world-class power giant, fueling the energy needs of China's most energy-hungry regions -- including much of the country's eastern coastal area. In 2004, power demand surged in Eastern China, and most coastal provinces suffered from electricity shortages. Under Li's leadership, our company has built dozens of power plants quickly and efficiently, which solved the problem.

The second reason why I like this power company has nothing to do with management or family connections. The truth is, it is the key beneficiary of China's increasing demand for electricity. China's solid double-digit growth depends greatly on generating power, and that's a need that won't go away any time soon. Let me give you an idea of China's surging demand for power: In just the last 18 months, China has increased its electrical generating capacity by the equivalent of Great Britain's total capacity. And Great Britain is the world's fifth-largest economy!

As you may know, China has been engaged in a massive infrastructure build-out over the last several years, in part because of the incredible growth there, but also to get ready for the 2008 Olympics in Beijing, which are now less than six months away. For a time, China was building a city the size of Philadelphia every 30 to 60 days. This build-out is slowing down somewhat, but it continues at a healthy pace, and as a result, demand for electricity in China is growing.

A Growing Company in a Growing Sector

The company I want you to buy is growing in order to keep up with that demand. One of the company's primary goals is to expand its electricity generation capacity. Last year, it increased its power generation capacity by 6%. It has also installed 15 new generating units at its power plants since 2006. As a result, the company’s power capacity surged 5% in the first five months of this year.

This company will also benefit from a recent move by China's government. The government is transforming the country's power industry by separating the power generation business from the power distribution business in order to prevent unfair competition. As a result, China plans to sell the electricity generation assets owned by grid operators to state-owned power firms like our power company.

Our Opportunity

Chinese stocks have been on a huge liquidity-driven rally this year, and we've already taken great advantage of this strength. Shares of the power company I’ve been telling you about have followed the trend, creating a lot of momentum behind the stock. And with China's demand for power rising, I believe this company is well-positioned for significant gains in the future.

Join China Strategy today and get the name of this company, as well as all the current portfolio holdings!

Home-Field Advantage: No U.S. Insurance Stock Comes Close

Knowing what the Chinese want to buy is one of the key elements to being a successful investor in this hot market, but if you can find out what they need to buy, you’re in for a windfall. I know that there’s at least one thing that China needs right now and will continue to need in a big way for decades to come.

I've actually had my eye on one particular stock for a long time. But the truth is, it was almost too hot last year. I felt the risk level increased the further and faster it went up, but I knew there were unstoppable trends in place that made it a great long-term opportunity, so the best strategy was to be patient and grab the stock after it pulled back. That's the opportunity I see now.

If I took a random poll and asked people to name the most explosive sectors in Asia, I doubt many would put insurance on the list. Yet in China, the insurance industry is growing a solid 15% a year. Even more important to the long-term potential, it’s estimated that just 2.7% of the people there have insurance. That's far below the levels in the U.S. and in other Asian countries, and about half the global average of nearly 5%.

As the Chinese middle class expands and people there take charge of their own destinies, I expect more people to purchase insurance. In the coming years, I look for China's insurance industry to grow rapidly and eventually become the largest insurance market in the world.

The life insurance industry in China is heavily protected from foreign and private sector competition, so the top three Chinese companies have a combined market share of 70%. We want to own the leader in the industry, and that's the company I’m recommending to my China Strategy subscribers. It's a State-Owned Enterprise (SOE), but it meets my criteria of being well-managed, operating in a high-growth and heavily regulated industry, and enjoying special support from the government in Beijing.

It also happens to be the largest insurance company in China, with a dominant market share of 51%.

The Biggest and the Best

Over the past decade, China's life insurance business has grown about 30% each year, twice the rate of the insurance sector as a whole, making China the world's fastest-growing major life insurance market. Rapid growth is expected to continue for at least a couple more years, and by next year China will likely exceed $100 billion in premiums, surpassing France and Germany.

There are several important factors that make China's insurance market a great opportunity for us as investors: (1) a huge and aging population base; (2) soaring economic growth, improving income levels and affluence, and a growing middle class; (3) the dismantling of the government-provided social safety net; (4) an increasingly educated population; (5) urbanization; and (6) lack of attractive investment alternatives.

According to a recent survey I saw, this company has a brand name that is recognized by 92.6% of the people in China. That's the highest among its peers and clearly gives the company an edge in attracting investors. I'm confident that this company will continue to grow by at least 15%–20% and maintain at least 40% market share over the next five years.

In addition to brand recognition, this company excels in other key areas necessary for insurers to succeed. It has the biggest nationwide distribution network in China, owning more than 3,600 branches, 12,000 field offices, 90,000 bancassurance outlets (banks that sell insurance), with 650,000 sales agents as of last count.

Not surprisingly, about 70% of its network is located in major cities, which is where wealth is growing most rapidly. This means there's still a huge opportunity in the rural areas and second-tier cities. This company has plans to open another 15,000 branches, and I believe expansion into the rural areas will be a key to the company's growth. I look for it to capitalize on its first-mover advantage in these areas. I also expect it to take full advantage of local expertise and enhance its brand image in China.

Click here to get complete details on this stock when you join China Strategy today.

China is far and away the largest cellular market in the world, with 440 million cell phone users. And the industry continues to grow more than 20% every year!

Chinese consumers are willing to spend money on the latest and greatest technology, and that often means devoting a full month’s wages to a cool new cell phone. Well, the phones are about to get even cooler, and as one of China’s leading manufacturers of mobile phone equipment technology, our next company, is dialed in to benefit from this boom. Based in Shenzhen, the company designs technical components such as memory chips, circuit boards, LCD screens, keypads and camera phones -- the very devices that make new cell phones smaller in size and yet have more capabilities.

Telecom and handset sales make up more than 70% of revenues. This company counts some of China’s largest cell phone and consumer electronic firms among its customers, such as TCL, Ningbo BIRD, Lenovo and UTStarcom. In addition, the company works closely with over 30 suppliers of technology components, including multinational companies such as Broadcom, JDS Uniphase and Matsushita. The 10-year-old company has grown with the biggest telecom manufacturers in China, making its Chinese connections difficult to match.

This China Strategy play has a lot going for it, but the main reason I believe it is such a good investment right now is that it is in prime position to capitalize on China’s decision to upgrade its wireless network to the next generation of wireless broadband, known as 3G.

The 3G Revolution

The increasing number of cell phone users worldwide has created demand for faster technology that lets people use their cell phones for more and more of their daily activities. 3G, or third-generation technology, aims to meet that demand by providing networks with the ability to simultaneously accept both telephone and non-voice data, like receiving emails and text messages, video, pictures, etc.

The problem is that 3G networks don’t operate through the same frequency as current 2G networks, so they’re extremely expensive to build. Companies must spend huge sums to build networks capable of handling these frequencies. In Europe, for instance, licensing fees have run as high as billions of euros.

As Asia modernizes and works to fully participate in the global marketplace, many countries have made developing their IT infrastructures a top priority. China is one of them. It will spend more than $24 billion to upgrade its wireless communications network to 3G. China had been expected to grant 3G licenses to its largest telecom operators this year.

In a carefully crafted move designed to help Chinese-based companies, the process has been delayed until a “homegrown” 3G network (known as TD-SCDMA) is up to par. Only when this happens will China allow international competitors from the U.S. and Europe to compete for its 3G business.

That means Chinese vendors are going to gain significant share when 3G rolls out, and I believe our company will be among the biggest beneficiaries. Trials are going on right now, and the government is expected to award its 3G licenses by next spring. Everything should be fully functional in time for the 2008 Summer Olympic Games in Beijing, so this story will continue to play out for some time.

Entering a Growing Market

I believe this company will really come into its own in the age of 3G technology, but that’s not its only business. The company has also made significant headway into the digital consumer market, which has massive potential in China.

This company has expanded into broadband and digital home entertainment products by introducing Internet protocol television modules known as “set-top boxes.” If you have a box for your cable TV, then you have a set-top box. These little boxes enable users to stream data, audio and video transmissions on their TVs at bandwidths that were never before possible, and they pave the way for China’s switch from regular to digital cable. At the close of last year, the number of digital cable subscribers in China was just 3 million. This year the number should hit 12 million, and by the end of 2008, at least 60 million. That’s a lot of boxes!

And in a significant development last year, our China Strategy company became the first company to land a coveted software licensing deal in China with Microsoft -- a move that fuels its expansion into the Mainland’s consumer electronics space.

Through this agreement with Microsoft, this company can expand its sales into new markets and further distance itself from its competitors. The partnership also gives it access to more intellectual capital. I think it’s a great move, and investors agreed. The stock jumped more than 13% the day it was announced.

In addition to its dominance in digital media, mobile handset and telecommunications equipment markets, the company is proactively seeking new high-growth markets in auto electronics, medical equipment and surveillance systems. Given its diversified strengths, this company should see steady development in both the short and long-term. Please sign up for China Strategy to get access to my subscriber-only website for my latest buy advice on this company.

Apple:
Cool Profits from Hot Gadgets

An unlikely cellular beneficiary of the China Miracle is the multimedia heavyweight Apple (NASDAQ: AAPL). Apple benefits tremendously from China’s low-cost manufacturing. Did you know that all of Apple's iPods and iPhones are made in China and Taiwan? Apple designs its products at its headquarters in Cupertino, California, and then outsources the manufacturing to China. This keeps profit margins impressively high.

I've been recommending AAPL to my China Strategy readers for some time now, and the stock has taken off -- we recently sold the stock for a 117% gain. It's a great example of a U.S. company producing big profits thanks in large part to China's growth.

And as you know, the company recently entered the cell phone handset industry with its impressive new product, the iPhone. The iPhone is an iPod, camera, phone and PDA all-in-one, and it’s already a big hit with consumers.

But that’s not the only revenue-boosting product that Apple has released lately. Apple launched a redesigned version of the iPod nano, which now includes a video display and comes in five new colors. In addition, the company unveiled a brand new product -- the iPod touch -- that has a touch-screen similar to the impressive iPhone. Steve Jobs calls the iPod touch “a landmark” because it’s the first of the iPods to include wireless Internet access.

I believe AAPL is a great company with much-have products a and I expect to be buying this company again in 2008, join China Strategy todayand be the first to know when AAPL is safe to buy again.

A Monopoly in the World’s Biggest Mobile Market

As I’ve said, when it comes to investing in China, I generally advise investors against state-owned enterprises (SOEs). However, there are a few exceptions and that is when you get a respectably run SOE that has a monopoly (or close to it) in a growing sector. In a nutshell, that describes the next company I want to tell you about.

The next company I’m recommending to my China Strategy subscribers is the only major wireless operator in the largest cellular phone market in the world. The company has what investors in state-controlled utilities look for -- good growth (about 30%), dominant market share and a nice dividend. With a market capitalization of roughly $300 billion, this company is the second most valuable Chinese company in the world after PetroChina, the state-integrated oil giant. (I do not recommend PetroChina because gas prices in China are set by the government at $1.90 a gallon, and PetroChina loses money at that price.)

Our company actually does have one competitor in its main wireless business, and that’s the poorly-managed China Unicom. Our company added 5.6 million new subscribers in August, almost four times the new subscribers at China Unicom. Also, China Unicom’s income is growing at a slower pace as it loses market share to its larger rival. Shares in our company increased almost 52% in the third quarter, easily beating Unicom's 19.5% jump.

China currently has 400 million wireless handset users, and over 66% of them pay our company whatever monthly fee it wants to charge. The market is growing more than 15% a year, and as bandwidth and value-added services improve with the coming 3G (the next generation of cell phone transmission technology), this company stands to increase its fees and revenues.

And just like the wireless company I told you about earlier, this company is expected to be a big beneficiary of China’s new 3G rollout.

I also like this company because the company has continued to gain market share from its wireless and fixed-line peers. It’s also benefiting from the growth in the less-penetrated rural markets. As Chinese investors start buying securities listed on the Hong Kong stock exchange, this company will be one of the first that they buy, which will be a big catalyst for its share price. Sign up today for my most current buy advice on this unstoppable wireless monopoly.

Enriching Minds and Profits

My next stock is a great way to profit from China’s education boom. China’s education sector is growing even faster than its economy as a whole -- and everybody knows how red-hot China’s overall growth is.

Sometimes, in the heat of the moment, it's hard to stay focused on the big picture, which is China's historic growth and its increasingly entrepreneurial society. Given the current subprime credit woes and the resulting sell-off, it's especially difficult to think long-term. But as investors, it's important that we look forward and concentrate on top-notch growth opportunities.

I'd like to tell you about one such opportunity today. This company is profiting from China's ultra-competitive, examination-driven education system in China. It also has excellent fundamentals -- after the last major sell-off that we saw back in late February/early March, the stock only took two weeks to recover and has been setting record highs ever since. I expect it to continue its strong performance in the coming months as it capitalizes on a growing segment of the Chinese economy.

In addition to paying for school tuition and books, most Chinese parents enroll their children in pricey extracurricular tutoring, which is an area that this company positively dominates.

It was founded almost 15 years ago by a man named Michael, who was a graduate of Peking University, which is China's equivalent of Harvard. He went on to teach English at his prestigious alma mater and made $12 a month, which was considered a good salary.

But Michael wanted more, so he decided to move to the U.S. However, his student visa application was rejected. Out of this setback came one of China's most interesting companies.

Michael started a test preparation business to help other Chinese students gain admission into U.S. graduate schools and avoid the rejection he endured. From its first class of only 30 students, Michael's company has grown over the past 13 years to become China's largest private education provider. It has a network of 35 schools and more than 130 learning centers in 24 cities, as well as an online network with two million registered users.

The company has helped hundreds of thousands of Chinese students gain admission to U.S. universities by providing prep courses on the TOEFL (which measures English proficiency) and GRE standardized tests, which are required for foreign students to be accepted by U.S. universities.

This is a huge and growing market. During the past decade, China sent more students abroad than any other nation, and Chinese students now make up 14% of all foreign students worldwide. And remember, every single one of them must pass the TOEFL test. That gives you an idea of how popular—and essential—Michael's preparatory classes are.

You've heard me say it before: The people are the real drivers of China's economic miracle. People like Michael. I wouldn't want it any other way, and I can think of no better reason to be so excited about the opportunities we have to build our wealth right along with them. I invite you to join us today. (Click here to learn more.)

U.S. Federal Reserve Chairman Ben Bernanke made headlines recently when he said that the aging Baby Boomers could hurt the economy down the road if "early and meaningful action" is not taken. This is nothing new, of course, but people pay attention when the man charged with the keeping the economy healthy makes a statement like that before Congress.

As you probably know, the baby boomers are the biggest demographic group in the United States and in Europe, so they're very influential. The oldest members are now turning 60, and as this huge number of people retires and ages, demand will increase dramatically for better and cheaper medical services.

Most Americans are already familiar with the problem of rising medical costs here, but it's actually a worldwide phenomenon -- including in China. Health care costs will continue to rise sharply as more people get older, and service providers will be desperate to cut costs.

And when cost is the issue, China is often the answer. In fact, the aging population around the globe plays right into the strength of one of my top recommended companies in China Strategy: providing world-class medical technology products at emerging market prices.

I'm very excited that the stock is now available to investors like us who trade on the U.S. exchanges, because this company has it all: great earnings growth, high profit margins, a large and rapidly growing end market, favorable government relations, fast-growing penetration into a giant global market, top-tier institutional sponsorship, reasonable valuation, tremendous international growth and a dominant industry position within China itself.

In fact, of all the Chinese companies traded on the American exchanges, I believe it is the best positioned to benefit from three of the greatest socioeconomic trends in the 21st century: 1) China's economic emergence and health care industry reform, 2) the graying of the population in developed countries, and 3) rising health care costs around the world. Click here to learn how you get immediate access to this stock and my complete buy list when you join China Strategy today.

China's Health Care Boom

This company is the number-one medical devices company in China, so it's clearly benefiting from China's historic growth. But what makes it doubly attractive is that it is also growing swiftly outside of China in the global medical device and laboratory instrument industry, which already rakes in $80 billion a year. The company manufactures and sells more than 40 medical devices in three business segments -- patient monitoring devices, diagnostic laboratory instruments and ultrasound imaging systems. It is the leader in all of its segments in China, which is experiencing its own health care boom.

As China transitioned to a market economy in recent years, health care shifted from the Communist model of central government sponsorship to more of a pay-for-service model that we're used to here in America. As a result, China's health care costs are one of the few things growing faster than its economy.

From 1978 to 2003, the Chinese central government's share of national health care spending fell by two-thirds, from 32% to 12%. During the same period, personal health care spending in the country increased dramatically by a factor of 40, rocketing up from $1.35 to $55 per person -- a mind-boggling 4,000% increase. Health care costs continue to grow 12% to 15% per year in China.

As you would expect, the government wants to keep these costs in check. One way it has tried doing that is by imposing price controls on routine services and standard surgeries at publicly owned hospitals. However, if you dig below the surface, you'll find a little twist with my recommended company right there in the sweet spot: The government allows medical facilities to earn profits from high-technology diagnoses, such as ultrasound imaging.

So guess what? In order to make a profit, Chinese hospitals routinely prescribe these premium diagnoses. As China's leading maker of high-tech medical instruments, our stock is far and away the biggest beneficiary of this policy.

Diagnostic testing is generally viewed as an effective method of reducing costs and improving the quality of health care. Since the SARS outbreak, in-vitro diagnostics (IVD) of blood, urine, saliva or other bodily fluids, cells and other substances from patients have been emphasized to diagnose and analyze various diseases and disorders. China's IVD market is projected to grow 14% a year through 2010, making it the fastest-growing IVD market in the world (more than double average growth of 6%).

Our company is right there in the thick of it. The company has the largest sales and service network of any medical device manufacturer in China, with over 1,950 distributors and 500 direct sales and support personnel. This extensive network gives it the advantage of being close to its customers, enabling it to be more responsive to local market demand than its competitors.

A World Leader

As I mentioned earlier, this company is succeeding not just in China but all around the world. It is the world's leading low-cost producer of high-quality medical devices with a tremendous competitive edge: It sells its products 30% cheaper than its international competitors!

The company obtained its ISO 9001 Quality Assurance certification in 1995, an important recognition of high-quality standards in the medical instrument industry, and most of its products are FDA-approved for use here in the U.S. or CE marked for use in Europe.

It's not surprising, then, that the company now has a significant and growing presence outside of China, primarily in the U.S., Europe and other regions of Asia. In total, its products are sold in over 120 countries, and the company's international business has tripled since 2003.

Currently, 43% of sales come from outside of China, and I believe the company can not only sustain the 50%+ annual growth in international sales, but that it is likely to accelerate in the next 10 years as the population of many of the world's developed countries gets older.

China's low-cost manufacturing advantage will help sustain the company's high growth rate for years to come. While this company is already the leader in China's fast-growing medical device and laboratory instrument market, its global market share is still only 0.3% -- giving it almost unlimited room for growth. As the low-cost heavyweight in an increasingly price-sensitive worldwide market, this company should continue to gain market share rapidly.

Healthy Profits

Because it operates in a large and booming market, sales and earnings both grew over 50% a year for the past five years. In the most recently reported quarter, sales grew 58%.

Just look at those numbers and you'll see one of the main reasons I believe smart investors simply must profit from China's growth. It's hard to find that kind of growth in more developed nations like the U.S.

And to top it all off, this is an entrepreneurial, private-sector company with quality management. It's a company where management's interests are aligned with the interests of shareholders. The two top managers own 46% of the company, and my former employer, Wall Street powerhouse Goldman Sachs (still the quintessential smart money institutional investor), owns an additional 9.6% of the shares.

The stock is already up more than 110% since I recommended it to my China Strategy readers, but I believe it has a very bright future. Looking down the road, I wouldn't be at all surprised if this stock doubles again for us. Click here to get my very latest advice on this company when you join China Strategy today at discounted prices.

China’s Enrons

China’s economic emergence -- the greatest economic boom in the history of the world -- is filled with both enormous opportunities and wealth-destroying hazards. My goal is to help you profit from the China Miracle, and to do that successfully, you need to know both the right stocks to invest in as well as the stocks to avoid.

Many investors who have already tried to make money from China’s unprecedented growth have actually lost fortunes by trusting naive fund managers or following advisors who don’t understand the unique dynamics behind Chinese companies, the government and the markets. Most fund managers and advisors do not fully appreciate the risks unique to China -- things like a lack of shareholder rights, low corporate governance standards and an undeveloped legal system. That’s why a lot of investors have been burned.

I don’t want that to happen to you. That’s why I’m sharing with you rules for avoiding typical investor pitfalls. In general, the stocks you want to avoid fall into two categories: 1) Chinese stocks that are dangerously vulnerable to market or governmental pressures and 2) American stocks wrongly hyped as “China plays” by analysts who have no idea what is really happening inside China.

Let’s get started.

Avoid Most State-Owned Enterprises

State-owned enterprises (SOEs) are exactly what they sound like: corporations owned by the Chinese government, many of which are publicly-traded. They still make up the majority of China’s largest businesses. However, government ownership for most of them is a liability.

Several important findings from a recent Chinese census affect us as investors: First, the private sector has replaced SOEs as the primary economic growth engine. As is always the case, bloated government-run organizations like SOEs don’t stand a chance competing against the much more effective private businesses run by entrepreneurs who have a burning desire to succeed. That’s why SOEs generally make terrible investments.

In recent years, China has transitioned from a government-planned economy to a market economy, creating enormous opportunities for private businesses while at the same time harming the bloated, inefficient SOEs that are not used to responding to the marketplace. My research shows that at least half of them will not survive the next decade in their present form. In fact, the portion of the Chinese economy controlled by the state and the SOEs has already decreased from 90% to 50% during the past 15 years.

That’s why, despite China’s extraordinary growth, you generally want to avoid investing in SOEs. Most have been -- and will continue to be -- lousy investments.

Notice I said “most.” There is one exception when it comes to investing in SOEs: enterprises with government monopolies in major growth industries that still control their markets, such as energy and telecommunications. These monopolies are like licenses to print money, and investing in the right ones can be very profitable. I will talk more about these in future issues of China Strategy.

Safely Play China’s IPO Market

I recently heard someone compare investing in China to "the Wild West." This is actually a very accurate description. China is the new frontier of investing, and it's a dangerous place for people who don't know the financial landscape. But for those of us who know the financial terrain, the culture, and have spent years investing in the region, China is a gold rush for investors.

A major driving force behind the Wild West analogy is the booming IPO market. I get asked about these types of investments all the time. There have been quite a few of them over the last two years, and there's likely to be many more to come.

One of the questions that I get most often from investors is "How can we tell if a newly offered China stock is worth buying?"

Evaluating an IPO is probably more of an art than an exact science. Because I've been doing it for so long, I've developed a rigorous process of evaluating these new listings. I evaluate price momentum, market psychology and the company fundamentals behind every new publicly-traded China stock. I also have my boots-on-the-ground team investigate firsthand what the company is up to in China. My team will visit the company whenever possible, they'll talk to employees and they'll survey customers. If all of the criteria are met, I tell my subscribers to buy.

And you just can't find these opportunities anywhere else. I know because my analysts go where Westerners can't. And we find the whole truth. It means big profits—fast—for China Strategy subscribers. Interested in learning more about these winning IPOs delivering large and rapid gains? Then click here now to get started.

Watching for an Opportunity

By shoring up bank balance sheets with government funds, Beijing has made its banks far more attractive to foreign banks and other strategic investors. That’s especially important right now because when China joined the World Trade Organization in 2002, part of the agreement was that foreign banks would be allowed to enter the Chinese market at the end of 2006.

As with other businesses, international banks are eager to profit from China’s growing economy and increasingly affluent population. The quickest way to do that is to partner with existing Chinese banks and use their retail branch network for product distribution. At the same time, Chinese banks look to their international brethren for additional capital, technical expertise and better risk-management practices.

For instance, after Bank of America made a strategic investment in CCB, it sent a team of 50 seasoned bankers to China to train CCB’s staff and held mandatory training classes for CCB managers. In addition, CCB hired senior bankers from Taiwan and Hong Kong to help restructure their business. I have to give credit where credit is due: Since their IPOs, both CCB and Bank of China have worked very hard to transform themselves into real banks instead of remaining arms of the government.

I believe China’s banking reform and foreign banks entering the picture are good news for us as investors. I don’t expect us to invest directly in a Chinese bank right away, and I don’t yet see any international banks whose businesses will be revolutionized by their presence in China. Those opportunities could certainly come, and I’ll let you know if they do.

The more immediate impact I see for our stocks is the likelihood that international banks will vastly expand the number of credit cards in China. Very few people in China have credit cards at the moment, but that’s beginning to change thanks to the emerging middle class and the Chuppies. Banks like Citibank and Bank of America have the marketing, operational and technical expertise to accelerate this process. More credit cards in China means more spending and higher growth for some of our companies.

Our stocks are already benefitting from China’s rapid growth, but the rush of foreign banks to get into China in the next few months could have a nice windfall effect for us as credit card marketing and use increases. I’ll be sure to keep you posted and let you know if there are any direct investment plays that arise as a result. As foreign banks establish a foothold in China, some compelling opportunities may present themselves to us. I’ll be watching, but for now, we’ll keep our distance.

Just Say No to China Mutual Funds

Mutual funds are the choice investment for many people. Some feel comfortable with the relative simplicity of mutual funds, having a manager (or an index) guide their investments and knowing that they are diversified. Many of you are also forced to invest in mutual funds through your company’s retirement plan.

I need to warn you, though, that most of the time, mutual funds are not the most effective way to make your money from China’s growth. There are three important reasons why:

Chinese mutual funds tend to invest too much in state-owned enterprises. This isn’t actually limited to just mutual funds. Wall Street in general doesn’t get it. With only a few exceptions, SOEs are wealth destroyers, not wealth builders.

As we just talked about, private businesses have taken market share away from inefficient SOEs. Most mutual funds (and Wall Street analysts) haven’t adjusted their strategies accordingly.

China mutual funds do a poor job of managing risk. I’m as bullish as anybody on China over the long term, but it will not be smooth sailing all the way. No investment ever is, but it’s especially true of China -- both because it’s still an emerging market and because you can never be sure what the government will do. Successfully profiting from China’s growth requires effective risk management.

In other words, you can’t invest your money and forget about it, assuming it will grow with China’s economy. Unfortunately, that’s what most emerging market mutual funds do. They stay fully invested in their sectors at all times, so they take big hits when the hiccups come, as they invariably will. The truth is that most mutual funds simply do not know how to sell, and the resulting losses can be substantial.

I stay on top of what’s happening in the streets of China, so we know long before most others where the trends are heading. And I’m not afraid to sell a stock when I see risks of any kind -- internal, external or valuation. This is not only the downfall of many mutual funds, but of a lot of individual investors as well. I don’t want to see that happen to you.

Most Chinese mutual funds focus too narrowly on Chinese companies. The China Miracle is a worldwide phenomenon, so you’re hurting your returns if you limit yourself to Chinese companies. Take commodities for instance. Chinese demand has driven up prices all over the world, so mining companies everywhere benefit. State-owned companies in China are not as well-managed as most other mining companies, so looking for your profits there is a big mistake.

Chinese Automakers: Don’t Get Taken For a Ride

China’s auto industry is fascinating. Imagine the fourth-largest car market in the world, a giant economy growing at nearly 10% a year with over 100 million middle class consumers and a new highway system stretching over 40,000 miles long.

Given all of this, investing in China’s car industry seems to be a no-brainer, right? Not necessarily. Like many things in China, what seems obvious on the surface is often not true when you know the real story.

While some of the growth numbers look appealing to the uninitiated, the truth is that you should not invest in China’s auto industry. The first and most important reason is that there are just too many car companies there. Although demand for new cars is strong, there are more than 100 car companies in China!

With that kind of supply, profit margins have eroded sharply in recent years. Car production in China rose 42% in 2005, with supply exceeding demand by as much as 23%. Even as sales hit a record 3.2 million autos in 2005 (27% more than 2004), industry profits declined by a whopping 40%.

That will kill any stock. Take Brilliance China Automotive Holdings, for example. It is the leader in China’s van market, and its stock used to be listed here in the United States. After hitting a peak of $60 in 2004, it plummeted to $15 last year. The company pulled its shares from the NYSE a couple of months ago, citing declining trading volumes and rising administrative costs.

China’s domestic auto industry is heavily protected and simply not globally competitive. In order for a foreign company to set up production in China, it needs a 50% local joint-venture partner -- most often an SOE of some sort. The only exception has been Honda Motors, which is well-respected in China and allowed to own 65% of its made-for-export car factories.

Domestic car producers in China come from a mixed bag of different backgrounds. Most independent Chinese car companies focus on the low-margin economy segment of the market where pricing pressures are cutthroat. More than half of these car companies have their roots in manufacturing other goods and only jumped into car making in the past three years as Chinese citizens started to buy more cars.

If you dig a little deeper, you’ll find that a large percentage of these companies are controlled by local municipalities, a sneaky variation of the infamous state-owned enterprises that a lot of analysts miss. As you would expect from the nature of SOEs, most of these companies overproduced and are losing money today. I hope by now you understand how strongly I feel that most state-owned enterprises are lousy investments -- and car companies are no exception.

As China’s economic miracle unfolds and more citizens have disposable income, I expect demand will continue to increase in the coming years. The current Chinese car companies are not a smart way to invest in that growth, and I believe most will not survive the next decade in their existing form. Stay far away from existing Chinese auto stocks (and and IPOs that may pop up) for now, and I’ll continue to watch the industry for opportunities as it matures in the coming years.

What about Chinese Automakers in America?

In 2008, the first batch of Chinese cars, led by Geely, will hit dealerships across America with prices below $10,000. While some analysts are talking about this as a possible threat to car companies already in America, I’m not ready to make that leap quite yet. I believe that these Chinese-produced cars will need to establish a reputation for quality before they can succeed in the most advanced and sophisticated auto market in the world. I’m not saying they won’t, but we’re not putting our money at risk until we know more.

What do I see for China’s auto industry? I see a much bigger, though less visible role as more established international companies outsource their manufacturing to China to take advantage of cheaper costs. Some of you may remember that VW’s Porsche division started to profit after years of losses by outsourcing production of its lower-priced Boxster to Eastern Europe. I see the same thing happening in China, but on a much larger scale, as more parts will be made and assembled for cars destined for outside of the country.

It is likely that, in a few years, you or I might buy a Mercedes or BMW that is 60% made in China -- and most of us won’t even know it. The cost savings for the global car giants will be the main profit center for the Chinese auto industry, and as this trend accelerates, I expect some exciting opportunities to emerge.

Avoid Stocks Listed in Mainland China

To paraphrase Charles Dickens, the past three years for Chinese stock investors have been both the best of times and the worst of times.

For investors in Chinese companies listed in Hong Kong, the past three years have been great. The Hang Seng H-Share Index -- which consists of 40 Mainland Chinese companies listed on the Hong Kong Stock Exchange -- is up more than 150% since 2003. On the other hand, Chinese companies (mostly SOEs) listed in the Mainland Shanghai and Shenzhen exchanges were down until 2006. Given China’s red-hot economy, it’s not surprising that H-shares in Hong Kong have been so strong. But what about the stocks that trade in Mainland China itself?

There are three main reasons behind their former sluggish performance, and understanding these reasons will put you ahead of most other investors trying to profit from the China Miracle.

High Valuation. Stocks trading in Mainland China sported a bubbly average P/E ratio of 56 at their peak in 2000 -- that is if you believe the earnings numbers. By comparison, the S&P 500 is now trading at 17 times trailing 12-month earnings, or less than one-third the valuation of Mainland stocks at their peak. At the other extreme, H-share Mainland companies listed in Hong Kong were dirt-cheap at the beginning of 2003, trading at an average P/E of less than 10. With H-shares trading at an 80% discount to their Mainland counterparts, it’s not hard to figure out which was the better buy.

Too Many Stocks Available. As SOEs became increasingly privatized, the state sold massive blocks of shares into the market, which depressed prices. Currently, the government owns approximately two-thirds of all the shares in companies listed on the Shanghai and Shenzhen exchanges, so this will continue to be a huge problem. The Chinese government is starting a series of reforms to alleviate the supply surplus, but it is too early yet to see any results.

Poor-Quality Companies. The third reason behind China’s past stock market decline is the poor quality of companies listed in the Mainland Chinese exchanges. China’s top publicly-traded companies are listed in Hong Kong and New York. Many of the companies listed in Shanghai and Shenzhen are unable to meet the more rigorous accounting and corporate governance standards required on the Hong Kong and New York exchanges. Corporate fraud on the order of Enron and WorldCom are common in companies listed in Mainland China. This pervasive corruption and fraud has eroded Chinese investor confidence, further contributing to China’s poor stock market fundamentals.

Although the Chinese government is working towards resolving these problems, none of these three issues will be resolved overnight, so you should stay away from companies traded on the Shanghai and Shenzhen exchanges. The best Chinese stocks are those listed on exchanges outside of Mainland China.

However, there are several Chinese companies traded on American exchanges that aren’t good investments. These companies are vulnerable to a variety of factors, from poor management to market forces and government interference.

American-Traded Chinese Companies to Avoid

American Companies That Are NOT China Plays

In the desire to profit from China’s growth, there’s a rush to proclaim any American company with a presence in China as a “China play.” That is often a mistake.

Here are some of the companies that you might hear wrongly hyped as China plays:

Let me say that my list here does not include stocks trading under $10 a share. Those companies are likely to have poor fundamentals that are already reflected in their low share prices, and many have already been branded as losers. Instead, I wanted to focus on bigger companies that you may have been tempted to invest in.

There you have it -- specific stocks to avoid and some general guidelines to keep you away from the profit-busting landmines.

In just the last few months, residential property prices in sections of Shanghai and Shenzhen have shot up an eye-popping 30%!

This isn't surprising considering the speed at which new wealth is created in China today. The wealth creation taking place there is truly mind-boggling. Having worked at the top firm in two of the highest-paying industries around -- hedge fund management and investment banking -- I've seen countless fortunes created almost overnight. But I've never seen so many people get rich as fast as we're seeing in China today. While millions of Chinese investors have made triple-digit returns in the past year, even more property owners saw the value of their real estate holdings double or triple in the past three years.

I've been interested in investing in Chinese real estate for many years, but I've never pulled the trigger. Up until recently, China's real estate market was a very difficult landscape to navigate -- even for experienced investors like me. While visiting Beijing in 2000, I almost bought a traditional courtyard house in a good location in the western part of the city. The courtyard house was old and needed a lot of work, but it sat on a generous-sized lot and was available for only $300,000 USD.

Similar lots in other major Asian cities -- such as Taipei, Singapore and Hong Kong -- sold for well over $1 million. By comparison, the Beijing house seemed like a good value. I ultimately decided to pass on the deal because the property needed extensive hands-on renovation, and I didn't want to move to Beijing just to supervise the project.

In addition, there was another reason that I was hesitant to buy. At the time, there were complex restrictions on foreign ownership of real estate in China. I didn't want to deal with all of the red tape involved. But the property's value did go up sharply, and today it's worth over $1 million after another buyer fixed it up.

One year after I passed on the Beijing house, the Chinese government eased restrictions that limited foreigners from purchasing real estate. As a result, property prices started to move up. Prices in booming coastal cities like Shanghai were the first to increase.

Interestingly, up-and-coming second-tier cities in China like Suzhou and Hangzhou actually experienced greater price appreciation than the first-tier cities favored by Western investors. For example, between 2001 and 2005, average property prices in both Suzhou and Hangzhou went up between 90% and 110%, whereas nearby Shanghai experienced a more modest run-up of 80%. Property prices in China's two other top cities -- Shenzhen and Beijing -- only climbed 30% in the same time period.

Residential real estate prices increased less in top-tier cities because a larger supply of new homes came on the market in these growing metropolises. Most leading real estate developers, many of them from overseas, focused on building in first-tier cities and flooded these markets with new condominiums. The excess supply also depressed rent and lowered yield for investors. As a result, both real estate returns on capital and price appreciation were higher in many second- tier cities than in China's top three urban centers.

Yuan's Rise Boosts Real Estate

In the summer of 2005, the Chinese central bank started to allow the yuan to appreciate against other major currencies. This set off a wave of foreign investors clamoring for yuan-denominated assets. Money started to pour into China, and the central bank accumulated vast foreign reserves rapidly. Since then, the Chinese yuan has rallied 8%, and real estate prices also began to rise rapidly. Not coincidentally, the Mainland Chinese stock market also bottomed at the same time, increasing an astounding 400% over the next two years.

We saw similar situations in both Taiwan and Japan during the late 1980s. When a currency revalues higher, the stock market follows, and then real estate prices follow the stock market. The currency gain combined with stock appreciation followed by huge rallies in property prices created huge fortunes in both Taiwan and Japan. In 1989, the top three richest men in the world were all Japanese real estate tycoons, and number six was a Taiwanese insurance industry billionaire who invested his company's funds in office buildings.

China is now following this same pattern, and property prices have skyrocketed. As you can imagine, this worries the government in Beijing. Because high property prices made housing unaffordable for the masses, the Chinese government decided to curb property speculation at the end of 2005.

To limit property speculation, banks raised the down payment requirement from buyers. For instance, in Shanghai, the required down payment for most residential properties increased from 20% to 40%. Yet most overseas Chinese investors didn't need mortgage financing and continued to buy. Then the government changed the rules again and limited foreigners from buying more than one piece of property per person. But despite Beijing's best efforts, property prices have continued to move up in most parts of China.

This year, as China's stock market boom picked up steam, property prices in Shanghai and Shenzhen started to rise furiously. Because Shanghai and Shenzhen are the country's two main financial centers, residents of these cities have made more profits from the Chinese stock market boom than Chinese in any other city. Stock investors and securities industry workers have been using their profits to buy local real estate. Property prices in both of these Chinese financial centers have jumped more than 50% so far this year. This amazing rise in housing prices accelerated over the summer following the huge rally in the Chinese stock market.

An In-Depth Look at China's Property Boom

Last year at this time, Shanghai's property market was soft. A typical condominium sold to middle-class Chuppies could be bought for about $130 USD per square foot. Today, the same condominium costs $200 per square foot.

Let me give you a firsthand example of just how much property prices have escalated. Last September while I was visiting China, a friend and I looked at a luxury high-rise condo unit with a stunning view of the Bund. The 2,500 square foot unit was selling for $875,000, which was about $350 per square foot. Neither of us bought it because we didn't care for the shoddy quality of the construction. Today that same unit -- poor quality and all -- is worth $1.4 million!

If China's economy is considered hot (11.9% GDP growth in the second quarter of 2007), then its real estate market is even hotter. But that wasn't always the case. As recently as 10 years ago, Chinese who had stable jobs with state-owned enterprises or the government could get apartments (big or small depending on their number of years of service) at subsidized rates as part of their job benefits. That's no longer true today.

China's real estate industry has expanded rapidly in recent years due to several factors: the growth of the Chinese economy, an accelerating trend towards urbanization, an increasingly affluent urban population and governmental reforms in the real estate sector.

China now has more than 50 cities larger than Chicago, the third-largest city in the United States. And millions of migrant workers are flocking into Chinese cities, which means that this number of urban hubs could double in the next decade. China's urbanization and its overall increase in prosperity have created a demand for higher-quality housing.

To top things off, overseas Chinese have invested heavily in the Mainland's property market to acquire yuan-denominated assets. This has also contributed to the greater demand throughout China for condominiums and houses.

In fact, during the five-year period from 2001 to 2005, the total gross floor area of primary properties sold in China grew at a compound annual growth rate of 25%. Thanks to property price increases, primary property sales revenue also climbed nearly 40% a year during the same period.

I expect this kind of growth in China's real estate sector to continue. Recent data show that property prices continue to soar substantially in major first-tier and second-tier cities, up an average of 8.2% in August and 7.5% in July from one year ago. Property prices in booming cities like Shenzhen skyrocketed 17.6% and 19.4% respectively in the past two months, while prices in the capital city of Beijing increased 13.5% and 10% respectively.

As China's real estate industry has grown in size and complexity, it has become increasingly specialized. Professional real estate services companies emerged in the mid-'90s in response to these changes.

These companies offer marketing and brokerage services, and they have grown considerably in the last two years. According to the China Real Estate Top 10 Committee, revenues and total floor area of the properties sold by the real estate services industry increased from $64 billion and 900 million square feet in 2004 to $128 billion and 1.62 billion square feet in 2006. That's a 100% increase in just two years!

With all of this appreciation happening in China's real estate market, investors are wondering how to get a piece of the profits. But, investing in Chinese real estate is complicated. It's too difficult for us as foreign investors to go to China and buy property directly.

Many Chinese investors on the Mainland and in Hong Kong have found a way around buying property. Instead, they often buy property company stocks in place of actual real estate to benefit from the property boom in China. But until recently, all of the major Chinese real estate development companies were listed in Hong Kong and the Mainland. Finally, one of China's top real estate marketing and brokerage companies got listed on the New York Stock Exchange in July. I've been watching this company since its IPO, and it's time to pull the trigger and take advantage of China's explosive real estate sector.

New Real Estate IPO to Buy Now

Founded in 2000, our next company is a leading real estate service company in China. It has a large scope of services, good brand recognition and a strong geographic presence. The company provides primary real estate agency services, secondary real estate brokerage services as well as real estate consulting and information services.

As an early mover in China's real estate services sector, the company has experienced significant growth since its inception. It has rapidly become a leader in Shanghai's real estate services market within the last two years. Now the company has over 2,000 real estate sales professionals in 29 cities throughout China.

This company has also successfully maintained and enhanced its brand name. The company has built strong business relationships with over 150 property developers, including leading domestic developers in China like Vanke, Neo-China Group and Citic Pacific.

The China Real Estate Top 10 Committee named our China Strategy play the largest real estate agency and consulting services company in China for the three consecutive years from 2004 to 2006. It has sold a total of 54 million square feet of primary properties with a transaction value of $5.4 billion in the past five years. And just last year, the company sold nearly 22 million square feet of development property totaling more than $2 billion, with an average commission rate of 2.5% to 3%.

Primary real estate agency services -- providing comprehensive marketing and sale services of new properties for real estate developers -- is the company's biggest revenue source, representing 82% of its revenue in 2006. Nearly half of its revenues came from richer East Coast provinces, like Shanghai, Jiangsu and Zhejiang.

This real estate play also has an impressive profit margin, which is one of my favorite indicators of a company's operating performance. Margins came in at 44% last year.

Despite all of this growth, we can't lose sight of the fact that this company is an IPO. One of the things I look for when investing in newly listed Chinese IPOs is the quality of the financial backers. Legendary Silicon Valley venture capital firm Sequoia Capital, which made its fame and fortune by backing Cisco Systems, Oracle and Apple, is the primary backer of this company. Sequoia partner Neil Shen, the co-founder of a number of our other China Strategy plays, also invested in this company back in 2004. He currently owns 10% of the company, and to me, this is a sign that it has a bright future.

Based on its first-half numbers, I expect this company to report impressive 100%+ revenue growth this year. I believe that earnings could reach 60 cents per share. The stock is now trading at 21 times next year's earnings, which is cheap for a company that's growing so quickly. As I’ve mentioned before, if you want all the details on this company, you must be a China Strategy member.

China is now less than one year from its Olympic debut. As we'll see in a minute, this event is stimulating consumer spending throughout China to a stunning degree, but the leading beneficiaries of easy money in China are the companies actually building the Olympics infrastructure. And there's still a lot to build.

There are many suppliers to choose from here: from nickel ingots to steel mills, power plants and generators, from CAD/CAM software to cranes, backhoes and banks. And China Strategy subscribers are all over these opportunities like white on rice!

But there is one company that is benefiting the most -- not only from this Olympic build-out, but also from the massive construction boom happening in China today. This company is up 70% in the last few weeks alone, and looks like it's only at the beginning of an incredible run.

Our Olympic "Metalist" Benefits from Build-Out

Iron and steel, nickel, copper and aluminum are the big guns in the great Olympic build-out. The steel girders of the amazing Bird's Nest stadium have already become such iconic objects that Coca Cola is using leftovers to stamp out souvenir buttons! We haven't seen that kind of frenzy since the Berlin Wall was torn down!

Who's supplying the raw material?

One mine has the lion's share of the contract. Steel, aluminum, nickel, iron -- all from one mine, all produced at rock-bottom prices.

No wonder this mine's sales to China are up 73% in the past year! And it's still only trading at a single-digit valuation to forward earnings!

Live Apple, this is a company I recently sold in China Strategy for a 285% gain.  I fully expect to buy this company again and want to make sure you are up to speed on this company. Here's a little background:
In the early 1990s, the city government of Shanghai took a swampland east of the Huangpu River called Pudong -- which literally meant "east of Huangpu" -- and declared that they wanted to transform it into the Manhattan of the Orient.

The result is the greatest construction boom in human history. For over a decade, more than 25% of all construction cranes in the world gathered in Pudong, building hundreds of skyscrapers and gleaming office towers. The tallest building in Pudong is the Jin Mao Tower, the fourth-tallest building in the world and a place that I've stayed during my trips to China.

Shanghai is just one place that has experienced a construction boom. In Beijing, as the city prepares to host the 2008 Summer Olympics, there's also a ton of construction going on. The government wants the city to look impeccable to make a good impression on the world, so I expect construction in Beijing and in neighboring cities hosting Olympic events to remain strong right up to the event.

With China's economy growing at a blistering pace, all of this construction has made China the fastest-growing aluminum market in the world. In the last few years, China's demand for aluminum has skyrocketed by 70%. And yet, per capita annual consumption of aluminum is less than nine pounds. In the U.S., we use an average of 66 pounds per person each year -- so you can see that China has a lot more room for growth!Be the first to know when the time is right to own this commodity profit monster  Join China Strategy Today!

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