Investing in China is just as difficult as trying to fathom the many complexities of that nation in transition.

Its government is actively issuing tougher standards for securities, accounting and corporate conduct. Yet it remains deeply enmeshed in free speech, privacy and trade controversies.

Many view China as a golden goose, but no one's certain who'll wind up with the golden eggs. The common investment logic is that a nation so big, vibrant and seemingly headed down the road to free enterprise just can't be overlooked.

"When you have growth opportunities in a country the size of China, there's a compelling case to be made that every investor should have some exposure to it," said Ian Wyatt, editor of the Growth Report investment letter in Washington, D.C. "You shouldn't invest in just one company, however, but through a fund or a basket of stocks."

Stocks of China have undeniable political and economic risk, Wyatt said. But he believes drawbacks are already reflected in discounted stock prices. Longer-term, he sees the government "trending toward becoming more capitalistic," with no significant pullback.

Despite the risks, optimism abounds.

In the past year and a half, three China-focused mutual funds and one China-focused exchange-traded fund have opened, according to fund-tracker Morningstar Inc. There are now 14 offerings focusing on that nation. Other common ways to invest include American depositary receipts traded in the U.S. or stocks on the Hong Kong or European exchanges.

Wyatt is interested in new-media companies; he recommends these stocks trading in the U.S. as ADRs:

- Focus Media Holding Ltd., which owns a flat-panel audiovisual display network used for advertising in elevators, lobbies, shops and offices in China.

- Netease.com Inc., the largest online game-playing company in China, which also provides wireless services and an Internet portal.

- Ctrip.com International Ltd., the leading travel services company in China, arranges hotel reservations, airline tickets and tour services.

- ELong Inc., the second-largest travel services provider in China, whose largest shareholder is Expedia Inc.

"Compared to the Asian region, China shares are trading at a relatively cheap valuation and we see a positive environment for them this year," said Richard Gao, lead portfolio manager for the $440 million Matthews China Fund, which has a three-year annualized return of 26 percent. "Overall, our portfolio of primarily Hong Kong-traded stocks is quite diversified, though we have historically overweighted the consumer, financial and industrial sectors."

China's growth is amazing. At the end of 1979 average per capita income was $270, and last year it reached $1,300, Gao said. The economy has been growing at an 8 percent to 9 percent clip the past 20 years, he said, but even so, mainland China's exchanges performed poorly for the past five years.

"The big disconnect in China is that despite how strong its economy has been, its stock market has languished," said Arijit Dutta, an analyst who covers Asia funds for Morningstar and isn't fond of volatile single-country investments. "That's because its market became too inflated in the middle to late 1990s and it has still not corrected."

Because of restrictions on stock ownership and concerns over government involvement in shares of mainland China exchanges, most mutual funds stick with Hong Kong-traded shares, Dutta said.

A fund he finds noteworthy is the $494 million Fidelity China Region Fund, three-year annualized return 25 percent. It has about half its portfolio in stocks on the Hong Kong exchange, some of them Chinese but not all linked to the mainland. One-fourth of its portfolio is in Taiwan, while South Korea represents a small portion.

Newly-offered funds expect a bullish 2006. Fastest out of the gate is the $19 million Oberweis China Opportunities Fund, launched in October and achieving a 36 percent total return the past three months.

"The companies we invest in typically were started by Hong Kong entrepreneurs moving back to mainland China and they often have a significant ownership position," said the fund's lead manager, James Oberweis. "Since transparency in China leaves something to be desired, we feel a little more comfortable when we see that management has its own skin in the game along with us."

Government-owned Chinese companies, on the other hand, should be avoided as investments because they lack the motivation to create shareholder value, experts said.

Largest holdings in the Oberweis fund are Hong Kong-traded shares of Century Sunshine Ecological Technology Holdings Ltd., involved in the research, development and production of organic fertilizers, and Lee & Man Paper Manufacturing Ltd., one of China's largest producers of corrugated products.

Among ETFs available in the U.S., iShares FTSE/Xinhua China 25 Index Fund, up 31 percent the past 12 months, holds shares of the 25 largest firms on the Hong Kong exchange. That ensures you're holding the most liquid shares, though with 60 percent of assets in the top 10 holdings, there is volatility risk..
 
Sources: Chicago Tribune

China's State Council said here Sunday that it will encourage state and local governments and their affiliates to set up venture capital firms to finance innovation-oriented start-ups.

According to new financial incentive policies aimed at stimulating nationwide scientific and technological innovation, the State Council also encourages the private sector to invest in research and development of start-up companies.

The incentive policies are targeted at creating a friendly environment for the implementation of the National Guidelines for Medium-and Long-term Science and Technology Development.

The State Council says it is considering setting up an innovation stock market for hi-tech start-ups, similar to the U.S. NASDAQ.
The securities authorities are expected to ease requirements and waiting periods of corporate applicants wanting to be listed on the stock market.

The State Council urges the State Development Bank to grant soft loans to hi-tech enterprises, the Import and Export Bank to finance hi-tech imports, and the Agricultural Development Bank to support commercialization of new agricultural technologies.
The State Council also encourages commercial banks to actively finance state hi-tech projects and forge business partnership with hi-tech start-ups.
 
Source: Xinhuanet

Oil and natural gas mining are the most profitable industries in China in 2005, according to a study by the State Information Center released on February 17.

The results of the study show that oil and natural gas mining made a profit of 292.7 billion yuan (about 36 billion US dollars), up 68 per cent from 2004.

Refining and preliminary processing of base metals ranked second among 39 industries analyzed by the research team headed by Fan Jianping.

The third most profitable industry was the generation and supply of electricity and fuel gas.

Others include the manufacturing of raw chemicals and chemical products, manufacturing electronics and telecommunications equipment, and manufacturing communications and transportation equipment.

Manufacturing of electrical and machinery products, manufacturing of general equipment, coal mining and washing, and textile are also among the industries that made the biggest profits in 2005.

Source: The Financial Express.

China's humongous steel industry faces a series of dilemma -- rising costs and dropping prices, over capacity and lower demand -- while it struggles to meet new opportunities during a period of contraction.

The Economic Information Daily reports that China produced 349.36 million tons of crude steel in 2005, accounting for 30 percent of the world output. China produces more steel than the next three largest steel producing countries combined.

Yet analysts predict that the total demand for steel this year would be 13 million tons less than last year's output as they see a need for 336 million tons to be produced.

Meanwhile the price of steel in China continues to plummet from its benchmark price in March of last year. At that time the steel price index stood at 138.33, but by August it had dropped to 116.59, a decrease of 15.72 percent.

The industry is also trying to absorb another blast from rocketing production costs which have soared some 65 percent in the last two years. This is blamed on rising world prices for ironore and oil along with increased costs in China for coal, electricity and transportation.

Despite the challenges, the steel industry as a whole make a profit in 2005. Sixty-six of the country's largest steel producers realized profits of 76.87 billion yuan (9.49 billion U.S. dollars).

Despite overproduction in the indigenous industry, the country still had to import over 26 million tons of rolled steel and billets in 2005.

A number of major construction projects in China found it necessary to import specialized steel products that are not made here. This includes a well-known hotel in Hangzhou, capital of eastern Zhejiang province, that bought more than 70,000 cubic meters of 3-mm steel plates from Spain at a cost of about 100 million yuan.

Seeing an opportunity to capture more of the specialized market has lead China's steel makers to rush to fill the void that is now predicted to fill too fast.

For example, experts warn that China's output of stainless steel could jump to 16.3 million tons by 2010 if all the producers complete their planned upgrades. Yet the demand for stainless steel is only expected to reach 8 to 10 million tons by then, according to analysts.

Last month, Luo Bingsheng, executive vice-chairman of CISA, said the country plans to shut down smaller blast furnaces. Those with a capacity of less than 200 cubic meters will be decommissioned by the end of this year and those that produce less than 300 cubic meters will be put out of operation by the end of next year.

It's also expected that the government will continue to encourage mergers and acquisitions of steel producers which could also provide a breakthrough in sector restructuring.
   
Sources: Xinhua

Leading officials in the Chinese computing industry have called for more investment in domestic high technologies. "We must develop our indigenous technologies in superservers, central processing units and optical and electronic units because developed countries prohibit the export of these technologies to China," Li Guojie, director of the Institute of Computing Technology (ICT) under the Chinese Academy of Sciences (CAS), said in an interview with Xinhua on Friday.

A decade ago, Chinese-made servers attracted few domestic or overseas buyers. To date, the most powerful Chinese superserver was listed by the U.S. Department of Energy as the world's tenth fastest superserver.

Suma 4000A, developed by the ICT, has the highest computing speed of 11 trillion times per second and eight trillion times per second according to the Linpack Benchmark, which measures server performance.

Li and his team own 31 invention patents with Suma 4000A, which has never been seen in any Chinese-made servers.

China started research on its own superserver in the early 1980s and successfully developed the Milky Way I in 1983, with the highest computing performance of 100 million times per second. Financial allocation and personnel deployment to develop superservers reflected China's commitment to promoting indigenous high technologies.

In March 1986, optical physicist Wang Daheng and three other prominent scientists wrote a co-signed letter to the central leadership, requesting the promotion of strategic high technologies. This led to the development of a national hi-tech research and development program, nicknamed the "863 Program".

The "863 Program" focuses on biological, space, information, laser, automation, energy, new material and marine technologies development, choosing 20 subjects as priorities of research and development.

Xu Guanhua, minister of Science and Technology, said, "Improving our innovation capability and developing technologies with our own intellectual property are the two main objectives of our hi-tech development strategy."

In the two decades after the launch of the "863 Program", Chinese scientists and technologists have sharpened their innovative tools in high-performance servers, central processing units, functional human genomes, bio-chips, cloning technologies, nano technologies and automation technologies.

Although huge leaps have been made in many fields of high technologies, China is still lagging far behind the developed world.
CAS President Lu Yongxiang said, "China has a blurred overall strategy for boosting high technologies.

"The state needs to invest much more in cultivating strategic high technologies and commercializing them," Lu said..
  
Sources: Xinhua