There’s a lot of talk about a “China bubble” and how China stocks are peaking. Don’t believe it. The reality is that China’s stock market is like any stock market – there are good investments and bad investments. So how do you find the good stocks in China? Simple: Buy what China buys. And since the People’s Republic is seeing soaring energy demand — specifically demand for crude oil. That means good things for major China oil stocks like CNOOC Ltd. (NYSE: CEO), PetroChina Co. Ltd. (NYSE: PTR), and China Petroleum & Chemical Corp. (NYSE: SNP).

Historically oil demand in China has been 50% of GDP growth. For instance, China oil demand growth was about 4% in 2009 – nearly half of China’s 8.7% annual GDP growth. Given the IMF’s projection of 8-9% GDP growth in 2010, that means we can expect another major uptick in crude oil demand – and profits for major players CEO, PTR and SNP.

China’s has an insatiable demand for natural resources. China is now the world’s biggest consumer of steel, cement, copper, gold and even meat! It’s number two in oil — for now – and I expect continued growth for the Chinese energy industry.

Of the three major China oil stocks CEO, PRT and SNP, my favorite is CNOOC Ltd. (CEO). In fact, I’ve recommended it to subscribers of my China Strategy newsletter since 2005. Despite the market’s meltdown in 2008 and 2009, these readers are enjoying a more than 150% profit in CEO – though at the peak we were sitting on about 250% gains! I have held on to this stock because I fully expect CNOOC Ltd. to move towards those peak valuations again. That means there’s still a lot of upside potential left in shares.

CEO is using China’s growing clout to expand into emerging market nations that are receiving financial benefits from Beijing. For instance, just recently it closed a joint venture with Bridas Energy Holdings that nicely lines up with CNOOC’s strategy of expanding its reach into Latin America and establishing a foundation for future growth in Argentina, Bolivia and Chile. Not only is expansion like this necessary for a resource-hungry Chinese company, but its necessary for CEO stock growth.

Also on that subject, CNOOC also recently agreed to acquire an additional 24.5% of Block 15/34 of an oil field located in the Pearl River Mouth Basin of South China Sea for $515 million. Currently, gross production from the block is 49,000 barrels of oil per day. After the acquisition, CNOOC will own a total of a 75.5% stake in the block. The South China Sea is CNOOC’s main area of operation, as it is estimated to contain 22 million barrels of oil equivalent, and additional acquisitions in the area will help the company reach is oil and gas output goals for the coming months and years.

Yes, some stocks in China will undoubtedly stumble in the coming weeks – like stocks in all corners of the world. But don’t worry about CEO. This is a China oil stock you can have faith in.

As of this writing, Robert Hsu was recommending  CEO to his paid newsletter subscribers.

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