Maybe my problem is that I want to know that the assets are there on the ground, and not going to be hijacked. So I tend to like the China economic infrastructure companies that are world-class, trade their shares on the NYSE, and can be compared to their global competitors.

Consequently, I have identified four successful China corporations: CNOOC (NYSE: CEO), Petrochina (NYSE: PTR), China Mobile (NYSE: CHL) and China Telecom (NYSE: CHA). All those corporations make the Cara list of the Global Best 100.

But, as much as I like the prospects of China's Semiconductor Manufacturing International (NYSE: SMI), I still have reservations about holding its shares more than a month or two at a time.

---

Sector 45: Technology
SMI Semiconductor Manufacturing Intl: Shanghai-based chip foundry (as yet unprofitable, but well positioned)

---

Semiconductor Manufacturing is a chip foundry that operates 8-inch wafer fabrication facilities. It is in fact the world's third largest contract chip manufacturer.

Apparently 89 percent of production is exported, but I could not confirm that in the few minutes I devote to studying these companies individually.

Market cap is $3.7 billion, and 4,500 employees work there, so this is a relatively big tech company " about half the size of a National Semiconductor, but just 5 percent of Intel. It is also a financially solid one, having raised $1.8 billion in an IPO about one year ago.

SMI trades on the NYSE as an ADR (1:50), so the trading in China/Hong Kong is of shares and trading in the U.S. is in units of 50 shares. The closing price Thursday on the NYSE was $10.16. Trading range for the past six months is $9.34-$12.47.

Last year's IPO definitely soured investors as the stock price has declined significantly. Of the eight U.S. analysts that follow the stock, the average rating is 3.4 on a scale of 1 (best) to 5 (worst).

The problem is that this new company still loses money, so there is no return on equity, and no prospect of dividends. Hence it won't make the radar screens of many of the big capital pools of the world.

The company is actually the old Motorola chip factory in Shanghai that was vended into the IPO in return for seven percent of the stock. Motorola recently sold their stake, which is not promising, however, other factors may be at play there.

Of the eight analysts that follow SMI, WR Hambrecht downgraded the stock on January 31, at $10.14 (which happens to be today's price). Interestingly, the operating losses are expected by all eight analysts to stop in 2005. The range for profits this year is a low of $0.01 to a high of $0.59, which shows that investors are still seeking a lot of answers with SMI.

While the losses are still large, the gross (EBITDA) margin is 48 percent. That doesn't quite match the margins of 55-57 pct at Intel, but it is still ok.

So, the reason that SMI is on my China Inc list of 18 stocks to watch is because it is a new and financially solid semiconductor technology company that is the biggest in China, which is the fastest growing market in the world.

That in itself should warrant a punt, as the British say, every time the stock sells off sharply.

---

One of my readers (Josh) pointed me to another China technology stock he holds, and the brief research I did showed me that perhaps I should keep an eye on it.

"One China stock you might want to look into is Ninetowns Digital (NINE). Despite its name, it is not an internet company but a software company that facilitates electronic filing of import/export documentation with the Chinese government. The quick points:
- Trades for roughly $8.25, has roughly $3 in cash/share
- Has grown revenues and profits each of past 5 quarters. Last QoQ rev growth 18.8%, sales growth 21.2%
- Earned $.16/share last quarter ($.15 fully diluted)
- Has guided for $.15-$.17 for next quarter and $.60-$.70 for the year
- No debt
- Software not easily pirated because it authenticates with software on the government end
- In addition to initial licensing fee, the company gets a per-transaction and maintenance renewal fees, recurring revenues apparently accounting for around ¼ of total
- Disclosure: I am long NINE

---

Also, another reader (Terry) sent me a note that read: "Famed investor, Bill Miller, whose Legg Mason Value Fund (ticker: LMVTX) has beaten the S&P 500-stock index 14 years in a row, holds a number of Chinese stocks in the Legg Mason Opportunity Fund (ticker: LMOPX). What are they? Miller owns Sina.com (ticker: SINA) and Netease.com (ticker: NTES). Why does he own SINA and NTES? He says, "The market caps are so small relative to the Chinese Internet, it's hard to see how you don't do well in these over three, five or ten years."

---

I'll look into all these stocks, and others that my readers alert me to, when I have time.

After all, writing this blog is a two-way street.

BCara@BillCara.com