Over the last few weeks I've been on a bit of a rail as I witness instance after instance of investors rushing into China and Chinese companies without any concept of the risk they are taking.

One look at Floyd Norris' Dec. 12 New York Times article on newly public Chinese travel firm Ctrip.com (NASDAQ:CTRP) gives a good example of why I predict a dire outcome for most investors piling into China. Ctrip.com does not have firm intentions to even ask holders of its American depositary receipts (i.e., the investors who buy shares of the company on Nasdaq) for their votes on corporate matters.

Mr. Norris calls it "convenient democracy." Not every Chinese company has such a miserable setup as Ctrip.com, but the cavalier attitude toward shareholder rights is quite illustrative. Securities laws in China are not strong, and neither are shareholder rights, property laws, and banking regulations. While the result of an emergent China may be fait accompli, the path will prove far more tumultuous than expected for those who have bid up companies such as Brilliance China Automotive (NYSE:CBA), Aluminum Corporation of China (NYSE:ACH), Sinopec Beijing (NYSE:BYH), Chindex International (NASDAQ:CHDX), or even Ivanhoe Energy (NASDAQ:IVAN).

When someone asks me how I would propose investing in China, my discussion focuses on companies that are unappreciated for their importance to the Chinese economy, and also companies that sell to China without need for any operations within China. One such route is a Chinese company that happens to be featured in our guide for stocks for next year, Stocks 2004. Another route centers on crops, and more specifically, fertilizer.

The three essential elements to fertilizer are potash, nitrogen, and phosphates. Of the three, potash has the most limited reserves, with only 12 countries as known sources. The largest producer of potash, by far, is Canada.

China currently produces about a million tons per year, but requires more than 5 million tons, projected to increase to nearly 8 million by 2010. Developing economies India and Brazil are projected to more than double their demand by 2010 as well, according to PPIC, an industry institute. Two of the largest companies in the potash business are Potash Corporation of Saskatchewan (NYSE:POT) and IMC Global (NYSE:IGL).

For all of China's growth and its booming industrialization, China is still essentially an agrarian economy. As its massive population slowly raises its collective quality of life, demands in many areas will rise. China will still need to feed itself, and the amount of efficiency per acre of cropland will necessarily need to improve. That means increased demand for fertilizer. So it wasn't a big surprise last week when China signed a deal with a Canadian consortium including IMC and PotashCorp to purchase more than 1.5 million tons of potash.

PotashCorp is the larger, more diverse, and better run of the two companies. Its stock is also quite high, so it may not offer spectacular potential from current prices. IMC is smaller, has higher debt levels, and has a recent history of negative cash flow from operations.

Still, increased demand for a product with extraordinarily high barriers to entry cannot be bad. That the companies' responsibility for the potash ends at the port of Vancouver is even better.

With this purchase, China is staking a substantial amount of its dependence for potash on Canada in general, and on these two companies in particular. They may not have the potential for boffo returns that pure China plays may have, but I'd suggest the potential for "what just happened?" moments is substantially lower as well.