Thanks to Beijing’s recent $586 billion stimulus attempt, the country is growing at a pace that is stomping the rest of the economically depressed world.

Instead of following Bernanke and Geithner’s plans to revive the economy through monetary policy, China is following a purely fiscal strategy. With a fixed currency and a slew of massive state-owned corporations, spending easy money is about all the country can do.

The recovery plan starts with the country’s lenders, Instead of sending money to the banks, giving them the decision to loan it out or pad their balance sheets, China is getting rid of any choice.

A bubble in the making

After loaning $97 billion in May, the banks doubled the figure in June, handing out another $220 billion in loans. So far this year, the nation’s banks have lent over $1 trillion dollars to its companies and citizens.

Is it working? So far, so good.

Currently, China’s main bank expects to record annualized growth for the current quarter of 7.5%, with the year’s official goal of 8% well within striking range.

But we all know China’s growth figures are anything but reliable. For a better measurement, we need to look at something a bit more tangible… like car sales.

This is where things get interesting.

Last month turned out to be a banner month to sell new cars in China, with sales surging more than 36% over the same period last year. Overall, 1.14 million vehicles were sold within the country, with 872,900 of them classified as passenger cars.

During the same period, American dealers managed to unload just 859,847 vehicles last month.

On a six-month basis, China’s sales superiority is obvious. American’s bought just 4.8 million vehicles as we closely awaited Detroit bankruptcies. Meanwhile, our Chinese trade partners bought 6.1 million cars, up 17% from last year.

Make money wherever you can

This is an important trend for investors to be aware of.

As Beijing pours more and more money into its economy, it is building a wider and wider economic moat around its borders.

The wider its moat, the less dependent it will become on exporting widgets to American buyers. With 1.3 billion people calling the country home, China will have plenty of buyers within its own borders.

For American investors, this means a change in investment theory. With a lending-induced bubble quickly growing to North American proportions, investors have an opportunity to take advantage of the quick, but likely unsustainable, growth.

If you have read my work lately, you know the commodities market is one way to play the action.

Another way is through any of the publicly traded major infrastructure players like China Architectural Engineering (NYSE:CAEI) or if you are into the smaller players, Qiao Xing Mobile Communication (NYSE:QXM).

Whether the current spending level and economic growth is sustainable is not the question. What is important is that China gives investors a shot at one of the quickest growing economies on the planet.

While the U.S. is treading water politically and economically, China is moving forward. It will do it whether you are onboard or not.

Source:The Debate is Over. China Wins!

That’s not to say there aren’t stocks with that type of potential residing in China — in fact, someone asked an unrelated, but an interesting, question on picking small-cap stocks in China:

“How would you go about picking small-cap stocks in China?”

So this got me thinking — let’s say I took the analysis I began in my article from last week, and went a step further and tried to identify some small cap plays in China using a similar strategy.

My approach to the market, and this sector in particular, has always been to take a top-down approach. I try to find the strongest companies, in the fastest growing sector of the hottest markets. So let’s apply that thinking here…

The “hot” market is China and one of the fastest growing sectors is wireless technology. And now we’ll add some market capitalization requirements — let’s say that we’ll be examining wireless companies that are trading under a $500 million market cap.

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Immediately, three companies show up on my radar:

• China TechFaith Wireless (CNTF: NASDAQ)
• Qiao Xing Mobile Communication (QXM: NYSE)
• Orsus Xelent Technologies (ORS: AMEX)

China TechFaith designs and manufactures mobile handsets for the Chinese market and abroad. They’ve had a rough go of it for the last two years, but the last 12 months have treated the company well.

Next we have Qiao Xing Mobile, which also produces wireless handsets and has done very well over the last 12 months. However, the company has had a recent hiccup in the stock that has brought prices down a bit.

And finally we have Orsus, which produces more multimedia-oriented phones for the Chinese mobile market.

So now the question is, how do we narrow these down so we can find the strongest company out of the three?

Let’s start by setting up some basic criteria:

1. Since we don’t want to fish in a pond where the fish might be dirty, we’ll limit ourselves to a market cap of over $100 million.
2. Because I’m a value-oriented investor, I want to make sure the fundamentals are sound in any company I invest in. So, the next criterion we’ll setup is that the company has to be profitable for the last three years.
3. And finally we’ll want to make sure we’re investing in a company that has had some solid momentum behind it — so we’ll only look at the best performers for the last 12 months.

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So here goes…

The best performers over the last 12 months, in order are: China TechFaith, Qiao Xing and Orsus. The only two companies that have been profitable for the last three years were Orsus and Qiao Xing. And since Orsus’ market cap is below $100 million, Qiao Xing is the only company that meets all of our criteria:

If you take a look at a chart of QXM you’ll see that the stock is down almost 15% in the last few weeks on a disappointing fourth quarter (even though they beat expectations). To me, it’s a temporary blip on the radar and it might be smart to buy on weakness here for the long term.

Click here to check out some other short-term China plays or to share some of your own.

Until next time,
Wayne Mulligan

P.S.: Penny Stock Fortunes editors Greg Guenthner and Jim Nelson recently recommended a tiny Chinese pharmaceutical company that is set to become the clear industry leader. So far, it’s paid off. In exactly one month, it’s up 45% for their readers. No worries though… If you check out this report today, you still have time to catch their latest two picks, which are due out any minute now…

Source: How to Pick Small-Caps in China