First Solar is still the thin-film leader despite Hanergy Thin Film Solar Group's market cap. Source: First Solar.

Investing in Chinese stocks isn't for the faint of heart, and lately it looks like it may only be advisable for those who are downright crazy.

The latest crazy move came when Hanergy Thin Film Solar Group Ltd. last week dropped by 50% and lost about $19 billion in value in a single day. The story hardly ends there: Hanergy's own CEO was shorting the company's stock just days before shares collapsed, according to Bloomberg. China might be the only place where something like that comes as absolutely no surprise.  

But the problem for investors is not a single day's move or a CEO's short position, but why the company was valued so highly in the first place.

You won't see SolarCity installing Hanergy Thin Film Solar Group's solar panels anytime soon. Source: SolarCity.

What in the world is Hanergy Thin Film Solar Group?
As someone who follows the solar energy business every day, I wondered just what this company was when it appeared on my radar. Industry executives I spoke with never mentioned the company as a competitive threat, and it is never cited in industry reports as a major player, yet Hanergy was worth more than almost all U.S. publicly traded solar stocks combined.

Hanergy has bought up the assets of a number of failed solar start-ups, namely MiaSole, Alta Devices, Solibro, and Global Solar. Supposedly their technology was going to lead to some industry-leading manufacturing position. Except there's little evidence Hanergy Thin Film Solar Group was ever going to reach production scale.

What appears to have occurred instead is market manipulation in a stock with a low float (not many of the company's shares were available on the open market), something Hong Kong authorities are investigating. But the fact remains that the company was never what it claimed to be, something we've seen too many times before in China.  

We've seen this story before
If you think Hanergy is an isolated incident of market manipulation or outright fraud from China, you might want to check the history of Chinese stocks as recently as a few years ago. Rino International, China MediaExpress, Puda Coal, Advanced Battery Technologies, Longtop Financial Technologies, and many more were found to be misrepresenting themselves to investors, and in some cases they didn't have much of a business at all.

In fact, that's exactly what John Hempton of Bronte Capital found when he visited Hanergy Thin Film Solar Group, as described in Greentech Media. There were few workers at the company's factories and no apparent business, a huge red flag for a $38 billion company. 

It's too bad that this story has happened too many times in China, something investors should keep in mind when investing in the country. 

Be very careful investing in China
Not all Chinese companies are frauds, and investments in such businesses -- whether through U.S. exchanges, foreign exchanges, or on the Pink Sheets -- won't always end up being disastrous. But there are too many examples of Chinese companies being less than forthright with investors, so anyone investing in China should be very cautious. It's not a place for the investor with a low tolerance for risk.