Dear Fellow Investor,

I'm finally finished with my holiday shopping. Are you? Even though everything is checked off my list, I'll probably still head out to the stores one last time just to be sure that I've found the perfect gifts. I love this time of year, but boy am I glad I'm spending this holiday in Taiwan and China!

It's very busy in America at this time of year. Many of us are shopping for gifts, attending holiday gatherings, decorating our houses and preparing to say goodbye to this year and ring in the next.

It's not quite this active in China, but there is still plenty going on, and I thought you might be interested in knowing about it. So let's start this week's Inside China Dispatch with a look at the holiday season in China, and then we'll look ahead at what I expect to be a big opportunity in 2008 and how to profit from it.

Party Time in China

As you're probably aware, the biggest holiday of the year in China is the Chinese Lunar New Year, which will fall on February 7 in 2008. Christmas and New Year's don't compare with that, but they are gaining greater importance as China embraces globalization.

For example, workers and students alike throughout the entire China region get Christmas Day off. In Mainland China over the past 10 years, we've seen the young and increasingly affluent (or Chuppies, as I like to call them) start to celebrate Christmas. Most Chinese are not Christians, so consumerism replaces the holiday's religious overtones. Christmas is a day for many Chinese to experience a "Western" lifestyle. Friends and couples exchange gifts, and parents in large cities like Shanghai often buy presents for their children as well.

The Chuppies absolutely love nightlife, and Christmas Eve and New Year's Eve are becoming two of the biggest party nights of the year. Restaurants that serve Western food, such as Pizza Hut, offer specials to attract extra business. And this tactic is working. Christmas Eve is now the busiest night for Pizza Hut, with patrons waiting an average of two hours to be seated at a table. (Our play on this in China Strategy is up more than 60% for us so far. Click here to get immediate access to it and all of my other current China Strategy recommendations.)

What's hot in China

Are you curious about what to expect from China's economy next year? I've made six predictions about what the China Miracle has in store for investors in 2008, and all six bode well for investors who are looking to capitalize on China's rapid growth. I'll be making these predictions available in the next issue of China Strategy. Click here to find out how you can join us and be one of the first to take advantage of these forecasts next week. In addition, you'll also get access to our complete portfolio of stocks, my specific buy limits, weekly updates on our companies, details on my trips to China and much more!

Outside of Mainland China, both Taiwan and Hong Kong have long traditions of celebrating Christmas. As a little boy growing up in Taipei, I always looked forward to finding new toys and gifts in my stocking under the Christmas tree. As in Mainland China, most Chinese in Taiwan and Hong Kong are not Christians, and Christmas is more of a party holiday than a religious holiday. Popular American restaurants in Taipei and Hong Kong, such as TGI Friday's and Ruth's Chris Steak House, all serve special Christmas dinners as well.

New Year's Eve is also becoming a major party night for Chuppies. It doesn't reach the level of Times Square, but giant citywide New Year's countdown parties are now an annual event and pop stars hold free concerts on large makeshift stages in front of crowds in excess of 100,000. After the countdown, there is usually a fireworks show to celebrate the New Year.

And speaking of celebrating the New Year, let's turn to what I expect to be a big opportunity in 2008 and how you can profit from it.

China's Top Restaurant Chain Poised to Profit in 2008

Dining out has always played a big part in China's food-centered culture, so it's an opportunity that investors need to be aware of. 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. That's a huge difference.

So how can we profit from this? Let's start with the number-one restaurant chain operator in China. You might be surprised to learn that it's a very American company, but one that has tapped into a crucial strategy for succeeding in China: adapting to local tastes, literally in this case. This company, which I'm recommending to my China Strategy readers, operates Pizza Hut and Kentucky Fried Chicken (KFC) in China. (Want to know more? Click here to get all of the details.)

KFC, in particular, is increasingly becoming the restaurant of choice for many Chinese families on their weekly night out. The chain now has more than 1,800 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.

KFC has succeeded where others—like McDonald's—have failed because they cater their menu 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. 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 enjoyed success by adapting to local consumer tastes. For instance, the restaurant offers imitation crab as a pizza topping. And then there's the deep sea eel pizza. It may not sound too appetizing to us, but it works in China.

Today, there are close to 250 red-roofed Pizza Hut restaurants in Mainland China, and it's not unusual to see long lines snake outside the entrances in the major cities. In fact, the average wait to eat at Pizza Hut a couple of years ago at Christmas was more than two hours!

While Pizza Hut is not known for great cuisine, it's often the best bet for pizza in second-tier Chinese cities, which is the next great growth market for this company. Having conquered Beijing and Shanghai, both KFC and Pizza Hut are expanding rapidly in the roughly 30 second-tier Chinese cities—which still have more people in them than Chicago!

But there's much more to this story. In a subtle way that many analysts miss, this company's success in China goes beyond being smart about their menu. They also understand that their restaurants symbolize so much more.

Profiting from the American Dream in China

My six-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. On one of our recent trips to China, 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 preferred restaurant to celebrate Western holidays, such as Christmas and Valentine's Day.

According to a Nielsen Survey, KFC is the top consumer brand in China, ahead of Coca-Cola and Nike. That's impressive. Assuming the current trend continues, China will become this corporation's biggest and most important market in the next five to 10 years. No wonder it's opening a new restaurant in China every day.

The strategy is paying off in a big way for the company. In October, it reported that third-quarter earnings were excellent, driven largely by Chinese operations, which saw profits soar 20%. Sales growth in China alone was up 33%! Since 1998, this company's profits in China are up more than 1,000%, growing from 2% of total operating profits to about 20%. I expect that number to increase even more in the coming years—thanks to the fast-growing Chinese market and this company's very successful China strategy.

The stock has gained 4% in December so far, and I continue to recommend it as a terrific long-term play. To get my specific buy advice on this winner, click here. This stock gives us a great combination of safety, steady growth and significant industry leadership in the world's biggest market. The company's growth prospects in China are excellent for years to come. After all, there are 1.3 billion mouths to feed, and that takes lots of chickens and pizzas.

Let me conclude by wishing you and your loved ones the happiest of holiday seasons. And here's to a fun and profitable 2008 for all of us!

P.S. Last month while I was in China, my China Investment Tour Group visited the Shanghai headquarters of our real estate services company. I wrote about our firsthand visit in the January issue of China Strategy, which will be posted to our subscriber-only website next week. Click here to learn how you can be among the first to read about my trip to the company's offices. This company is one of the only safe ways to take advantage of China's scorching-hot property market, and it's up 30% in the last four weeks! Join today and get immediate access to all of the details on this property play.