Dear Fellow Investor,

You've heard me say it before: China is the mother of all investment themes. As the country continues to modernize and grow, the number of investment opportunities will also increase.

But as you know, it's not easy to choose profitable Chinese stocks. There are many considerations that investors must take into account before purchasing shares, like issues surrounding corporate corruption, lack of transparency, high valuations, poor business models, red tape and the language barrier.

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 started Inside China Dispatch more than two years ago—I want to steer investors like you towards the best industries in China and keep you away from the worst ones.

So far we've been successful with our strategy of focusing on the entrepreneurial private sector, the well-run government monopolies and companies that capitalize on growing Chinese consumer spending. We've also profited from China's low-cost manufacturing abilities. (Remember our position in Apple, which outsources manufacturing to China? We sold it at the end of January for gains of more than 75%.)

A Fertile Opportunity

China has more than 1.3 billion mouths to feed. And with industrialization and urban sprawl taking over, Chinese farmers are continually asked to produce more crops from shrinking amounts of land. How do the farmers do it? With fertilizer, of course. China consumes more fertilizer than any other country, and I expect China's fertilizer demand to grow by 15%–20% per year over the next five years. That's why I'm recommending a major fertilizer producer in my China Strategy service. Despite the current volatile market, shares of this company managed to climb 5.5% this week up until yesterday's close. Want to know more about this industry leader? Get all of the details instantly by becoming a China Strategy member now. Don't miss out on this opportunity!

But sometimes it's not enough to invest in good companies. Even the most innovative and well-managed companies can experience unforeseen hiccups, so it's important to be aware of the big picture in China. Let me give you an example of what I mean.

Trying to Profit in a Regulated Industry

Nearly two years ago, I recommended a large oil refiner in my China Strategy service. I was excited about the state-owned company because it was clearly favored by the Chinese government. The government imposed strict price controls on gasoline in China at the time, which meant that most refiners lost money selling gas. But our refiner actually received special (and large!) reimbursements from the government for its losses.

The Chinese government also imposed a windfall-profit tax on oil producers to help subsidize refinery operations that were losing money. As the largest operator of refineries in China, our company stood to receive more in subsidies than its oil production division would pay in windfall taxes. Plus, as crude prices shot up, I saw signs that that the Chinese government might eventually stop regulating gasoline prices in the near future.

In addition, the refiner had excellent corporate governance for a state-owned enterprise and was trading at a relatively cheap valuation. We added the stock to our China Strategy portfolio in May 2006 and watched as shares climbed higher.

Everything was looking good for our refiner—production increased, better cost controls were put in place, and technological innovations helped boost profits. But early this year, a shift in government policy happened.

The Chinese government suddenly announced a freeze in energy prices during the first half of January. The move was meant to curb inflation in China, but it had the potential to damage our oil company's profitability.

After watching the situation in China closely for a couple of weeks, I recently recommended that China Strategy members sell our refining stock for profits of 58%. I didn't think the company could flourish in an environment of tight price controls, and I didn't want to hold on to shares as corporate earnings start to slide in the coming months.

There's No Substitute for Experience

Even though we sold the refiner, I still believe that there are ways to profit from China's oil industry. In fact, we're currently holding an exploration company in our China Strategy portfolio that's up roughly 158% for us so far. I believe that shares of our exploration monopoly will continue to rise as China searches more aggressively for ways to meet growing domestic demand for oil. Want to know more about this exploration powerhouse? Click here to get all of the details on this doubler.

There's an important lesson to be learned from this situation. As an investor, you can't buy stocks in a vacuum. Even if you buy shares in top-quality companies or promising industries, you have to be informed about outside pressures that could affect your investment. In the case of our oil refining company, the Chinese government created harmful pressure by freezing gasoline prices.

In my China Strategy service, I strive to keep members up-to-date on anything happening in China that could potentially affect our portfolio. We talk about everything—whether it's government policies to curb inflation, popular spending trends, or even sporting events like the upcoming Beijing Olympics.

I stay on top of current events by reading Chinese newspapers, visiting the country frequently (in fact, I'm returning next month!) and getting firsthand information from our boots-on-the-ground team in China. The fact is that you simply cannot have a successful investment plan that includes China without a reliable network who knows the country inside out.

Join China Strategy today and profit from my firsthand research and experience. China's emergence—the greatest economic boom in the history of the world—is filled with both enormous opportunities and wealth-destroying hazards. I promise to help you find the best opportunities while avoiding the biggest dangers.

P.S.  My economic indicators show that a handful of quality Chinese stocks have bottomed and are positioned to rebound in the coming months. Next week in China Strategy I plan to issue a buy alert on a high-profile Chinese company that will benefit from the Summer Olympics. You probably already know this company's name, but do you know when the best time is to pick up shares? Become a China Strategy member now and be among the first to learn when to buy before this company's next bounce!