It happens to me at least once a day. It often comes from a subscriber to one of my newsletters. Sometimes it comes from a client of my money management firm, and sometimes it even comes from the waiter at my favorite restaurant. The “it” I’m referring to is the inevitable question I’m always asked: “Robert, what are the best China stocks to buy right now?”

As you might expect, this question cannot be answered properly for any specific investor without a whole lot more context. However, what I can say is that the tremendous economic growth taking place in China — and the stocks taking advantage of that growth — constitutes an incredible opportunity for nearly every investor.

Now, with that disclaimer of sorts out of the way, here are five stocks that I think every serious China investor should consider owning.

NEXT – Baidu

China Stock #1 – Baidu (BIDU)

China’s premier Internet search site, Baidu (BIDU), recently reported what some analysts called an ugly fourth-quarter revenue forecast. But that forecast was issued as part of the Beijing-based company’s 42% leap in third-quarter profit over the same period a year earlier. The company said that it expects a “temporary negative impact” on fourth-quarter revenue as it completes the transition to its new online advertising system, Phoenix Nest. 

I suspect this new advertising system will come with growing pains, but a new advertising system doesn’t alter the fundamental growth drivers for Baidu in any way. China, by far, has the world’s biggest population of Internet users, with approximately 338 million people online as of the end of June, according to official state numbers. Chinese Internet usage is growing at double-digit annual rates, and Baidu dominates China’s Internet search market, with over 60% market share. 

The only real threat to Baidu’s market dominance is Google (GOOG), which has approximately 30% of the market. And while we shouldn’t discount Google as a strong competitor, it has a long way to go before it can do anything to unseat Baidu as the premier Chinese Internet play.

NEXT – China Green Agriculture

China Stock #2 – China Green Agriculture (CGA)

China Green Agriculture (CGA) develops, manufactures and distributes humic acid-based, liquid compound fertilizer throughout China. The company has one of the most recognizable brand names in Chinese green fertilizers today, and it operates on a national scale covering 27 provinces in China.

Because China Green Agriculture’s strong prospects piqued my interest, I decided to go to Beijing and visit with senior management. What I discovered was the company has a big competitive advantage via its strong R&D facilities. The company spent millions building a greenhouse research facility, which gives CGA an edge in product development.

China Green Agriculture recently announced a new sales strategy for fiscal years 2010 through 2012 that is expected to increase sales volume by around 40% per year. The new strategy is intended to heighten brand awareness of millions of farmers throughout China to CGA’s fertilizers. To do so, CGA will open retail stores in various rural locations that sell directly to farmers, helping promote China Green Agriculture’s name. While the plan is indeed ambitious, I suspect it will be fully achievable given the company’s tremendous growth record.

NEXT – KongZhong Corp.

China Stock #3 –
KongZhong Corp. (KONG)

KongZhong Corp. (KONG) is a play on China’s wireless economy. The tremendous growth of mobile application software and e-commerce is driven by mobile phones and is being fueled by increasingly powerful handsets, cheaper and faster data transmission and new software, all of which are fundamentally transforming cell phones into all-purpose, high-speed Internet devices. 

China is the world’s largest wireless Internet market with more than 600 million cell phone users, and 338 million Internet users. KongZhong is the hands-down leader in what’s called traditional wireless value-added services and mobile software applications. Instant messaging, ring tones and multimedia messaging make up the bulk of the company’s value-added services. This is a big business in China. In a country where 95% of the population is under than 30 years old, young Chinese need to reach out to connect with other youths, and cell phones are their preferred communication tool.

The company also sells handset games and mobile online community software. KONG charges a download fee for these games, and based on the tremendous growth in just a short time, I see this side of its business growing immensely in the years ahead.

NEXT – China Cast Education

China Stock #4 – China Cast Education (CAST)

China Cast Education (CAST) is a leader in China’s e-learning business. The company provides long-distance interactive learning to over 131,000 students at 15 colleges and 6,500 secondary schools. CAST also provides e-learning services to government ministries and corporate enterprises. The company’s e-learning business accounts for 75% of its total revenues, and this segment is growing rapidly, as more Chinese enroll in college classes.

During my recent visit to Beijing, I met with China Cast management, and I found them most impressive. Unlike most Chinese companies, CAST is managed by seasoned international executives. After seeing their impressive operation, I came away confident about the company, its management and its continued growth. That growth is taking place at the rate of over 20% a year, but despite this strong growth, the stock still trades at very attractive valuations.

As long as China’s economic growth continues to lift millions of Chinese into the middle class, the demand for higher education will continue expanding — and that’s what makes China Cast such a strong stock.

NEXT – China Life

China Stock #5 –
China Life (LFC)

If I took a random poll and asked people to name the most explosive sectors in Asia, I doubt many would put insurance on the list. Yet in China, the insurance industry is growing at a rapid pace. As the Chinese middle class expands and people there take charge of their own destinies, I expect more people to purchase insurance. In the coming years, I look for China’s insurance industry to continue growing rapidly, eventually becoming the largest insurance market in the world.

Taking advantage of this trend is China Life (LFC). As the life insurance industry leader with about a 50% market shares, China Life is the dominant player in an extremely underdeveloped insurance market. The company also has the biggest nationwide distribution network in China. Not surprisingly, about 70% of its network is located in major cities, which is where wealth is growing most rapidly. This means there’s still a huge opportunity in the rural areas and second-tier cities. China Life has plans to open another 15,000 branches, and I believe expansion into the rural areas will be a key to the company’s growth.

NEXT – What All These China Stocks Have in Common

What All These China Stocks Have in Common

There is one thing all of these stocks have in common, and that is they’re all dependent on China’s economic growth. But just what kind of growth is taking place in China? 

Well, after strong third-quarter GDP results — a whopping 8.9% economic growth — the country is already looking towards fourth-quarter goals. Currently, fourth-quarter economic growth is expected to surpass 10%. If that happens, the year-end economic growth will hit 8.3%, or 0.2% higher than projected. This is great news for China investors — and particularly great news for these five Chinese stocks.

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• Why China Stocks Still Have Plenty of Room to Grow
• Baidu (BIDU) – A Better Buy Than Ever