Intel Inside China

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In yet another tantalizing case of East meeting West, chipmaker Intel (Nasdaq: INTC) is joining forces with Chinese search-engine leader Baidu (Nasdaq: BIDU) to enhance Internet search services in China.

The move makes more sense than you think. Even though Baidu is still the most popular search engine in China, Google (Nasdaq: GOOG) is gaining. Baidu has the advantage of years of experience in scouring through complicated Chinese text, but Google's growing war chest and stateside search superiority make it a legitimate threat.

Teaming with Intel will help Baidu expand into search applications in cell phones, PDAs, and other home appliances beyond the desktop. Intel is the kind of intellectual buddy that a company like Baidu loves to have in its corner.

China's economy is booming, averaging 10% annual spurts over the past three years. However, Internet usage is still in its early stages, with roughly 10% of the country's 1.3 billion citizens online.

That's why I own shares in Baidu, and why I recommended NetEase.com (Nasdaq: NTES) to Motley Fool Rule Breakers subscribers 17 months ago. The selection has panned out well, soaring 85% higher since it was singled out.

Baidu and online gaming specialist NetEase aren't the only companies cashing in on China's dot-com potential. Other companies like ShandaInteractive (Nasdaq: SNDA) and The9 (Nasdaq: NCTY) are winning over Internet gaming enthusiasts, and the next few years are likely to bring even more Web-enabled content-producing entities to market.

They may not do it alone. Just as companies like Yahoo! (Nasdaq: YHOO) and eBay (Nasdaq: EBAY) acquired stakes in Chinese auction sites to gain a foothold in the fast-growing region, look for more deals, minority stakes, and outright acquisitions to fuel China's promising dot-com future. Intel was already a player in China. Now it's entrenching itself deeper -- and that's a good thing.

Shanda and NetEase.com have both made the cut as active Motley Fool Rule Breakers recommendations, while Intel is a Motley Fool Inside Value pick.

Longtime Fool contributor Rick Munarriz has been a fan of China's high-margin online stocks for a long time. He is a member of the Rule Breakers newsletter team. The Fool has a disclosure policy .