China stocks took a nosedive last week on speculation that the nation's central bank would be raising interest rates yet again. Last month saw the country's consumer prices skyrocket 4.4%, exceeding the 4% widely expected. And as the eastern giant's oversized economy expands, it's having to face a few growing pains along the way.

HSBC Private Bank's Arjuna Mahedran told Bloomberg BusinessWeek that "regulators have been clear that they wouldn't condone rising prices," echoing the general analyst sentiment that Beijing will almost certainly take measures to curb runaway inflation. But when it comes to how to trade that information, there are two competing schools of thought.

In one corner you have the bulls in the China shop, proclaiming now the right time to buy. The nation's economy has a lot of momentum behind it, with projections putting growth as high as 15% by next June. And since its government raised interest rates back in July, China's economy has already bounced back 26% -- so why wouldn't it do the same again? At least, that's HSBC analyst Mahedran's line of thought: "the trend is upward," he says. "You just have to wait for the dust to settle."

Then there's the Goldman Sachs camp, taking a surprisingly bearish stance by opting to close out their "long China" recommendation and cash out their profits. According to Goldman's official statement, the rewards just don't outweigh the risk that comes with China's expected reserve rate hike and policy tightening. But the investment bank move has some scratching their heads and wondering if there's more to the story.

Could it be, as one blogger suggests, that they're no longer buying into the notion of decoupling? Meaning, perhaps they're beginning to doubt a sustained BRIC boom in the wake of a U.S. bust.

Which side of the China trade are you on? If you're up for the risk of investing in the Orient, you may want to start with a list of Chinese stocks that have the highest CAPS ratings. (Click here to access free, interactive tools to analyze these ideas.)

Here is a list of the Motley Fool community's favorite Chinese stocks, as determined by the CAPS ratings system.

Company

Industry

Market Cap (in Millions)

Performance Over Last Year

CAPS Rating

Yuhe International (Nasdaq: YUII)

Food Industry

195.92

70.79%

*****

Zhongpin (Nasdaq: HOGS)

Meat Products

663.34

40.13%

*****

China North East Petroleum Holdings (NYSE: NEP)

Oil & Gas Drilling & Exploration

207.68

36.43%

*****

SORL Auto Parts (Nasdaq: SORL)

Auto Manufacturer

171.38

31.75%

*****

Fushi Copperweld (Nasdaq: FSIN)

Industrial Electrical Equipment

388

27.10%

*****

Chemspec International Limited (NYSE: CPC)

Specialty Chemicals

276.39

26.24%

*****

Cogo Group (Nasdaq: COGO)

Diversified Electronics

272.75

21.96%

*****

Interactive Chart: Press Play to see how market caps have changed for all the stocks mentioned above.


Kapitall's Eben Esterhuizen and Alicia Sellitti do not own shares of any companies mentioned.

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