Dear Fellow Investor,

I believe we can make truly spectacular gains from select China investments in the months and years ahead. A month ago, when we saw sudden, knee-jerk selling in many Chinese stocks, a lot of investors forgot that. They only hurt themselves in the process.

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. But now, we can look back at what’s happened in the last month and see exactly the kinds of opportunities I’m talking about.

In this week’s Dispatch, I thought we’d look at two stocks I’m recommending in my China Strategy service that have bounced back strongly. Both have bounced 20% in just the last three weeks! (Click here to learn how you can join China Strategy today and get complete access to all of my recommended stocks.)

Next-Generation Profits in 2007

The first company is a play on China’s wireless market, which is far and away the largest in the world with 440 million cell phone users—more than the entire population of the U.S.! The industry continues to grow more than 20% a year and will hit an eye-popping 500 million users this year.

Chinese consumers are willing to spend money on the latest and greatest technology, and with wireless so hot there, they often devote a full month’s wages to a cool new cell phone. Well, the phones are about to get even cooler, and one of China’s leading manufacturers of mobile phone equipment technology is dialed in to benefit from this boom.

Based in Shenzhen, this 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. The 10-year-old company has grown with the biggest telecom manufacturers in China, making its Chinese connections difficult to match.

This company 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 imminent move to upgrade its wireless network to the next generation of wireless broadband, known as 3G.

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.

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. Chinese vendors are going to gain significant share when 3G rolls out, and I expect this company will be among the biggest beneficiaries.

I look for the Chinese government to award 3G licenses in time to have the network fully functional by the 2008 Summer Olympic Games in Beijing, just a year-and-a-half away. You can see that this story will continue to play out for some time, and now is a great time to position yourself for profits before the hype builds. (You can get complete details on this stock, including my latest buying instructions, when you join China Strategy today. Click here for more information.)

Profiting from the Next Generation

The second company is profiting from China’s ultra-competitive, examination-driven education system in China. In addition to paying for school tuition and books, most parents enroll their children in pricey extracurricular tutoring, which this company 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 25 schools and more than 110 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.)

Until next week,

Robert Hsu
Editor, China Strategy

P.S. In the April issue of China Strategy, which will be released on Monday, I have a full report on our brand new buy—a stock that’s moving up thanks to the two hottest commodities around right now. Click here to join us today and be among the first to learn about my new recommendation.