What's it going to be, Shanda Interactive (NASDAQ:SNDA)? In or out?

The Chinese giant of online gaming sent a strong and confident message last night, when it announced a $200 million share repurchase plan. Buying back stock is a refreshing sign, indicating that a company feels that its stock is undervalued.

Four minutes later, it issued another press release, this time on a proposed private offering of $130 million in convertible senior three-year notes.

Talk about sending out a mixed message. On the one hand, Shanda feels that its stock is so cheap -- and rightfully so at just 13 times earnings -- that a buyback is in order. Then it turns right around to raise $130 million, and as much as $150 million, on a note offering that is tied to the appreciation of Shanda's stock.

Is there more to the story? Yes. The proceeds of the senior note sale will go to the buyback. Why? The company closed out its latest quarter with $513.2 million -- or nearly $7 a share -- in cash and short-term investments. It also seems hypocritical to eat your own cooking with a buyback, while triggering shareholder dilution come 2011 with a convertible.

Then again, Shanda makes a living on people playing games, so I'm sure that it has thought this strategy -- and all of its game-theory implications -- through.

Online gaming is still in its infancy in China. Investors may have plenty of attractive choices, with companies like Giant Interactive (NYSE:GA), Perfect World (NASDAQ:PWRD), The9 (NASDAQ:NCTY), and NetEase.com (NASDAQ:NTES) to consider. Even non-gaming companies like Sohu.com (NASDAQ:SOHU) and CDC (NASDAQ:CHINA) are getting into the mix.

It's a crowded field, even though there is apparently plenty of elbow room for the leading players to continue to grow quickly on fat margins. Maybe Shanda is stowing away its cash for the eventual sector consolidation. If a rival stumbles down to an attractive price or a hotshot upstart is worth snapping up, Shanda's fat pockets will come in handy.

In that case, sharp investors should see through the mixed message and follow Shanda the buyer instead of Shanda the convertible-note seller. The game is just getting started in China, but it's clearly a game worth playing.

Three more ways to play in China:

Want to learn more about NetEase and Shanda? They were recommended to Motley Fool Rule Breakers premium research newsletter subscribers several years ago, way early in their growth cycles. Find out how to play the growth-stock game with a 30-day trial subscription offer today.

Longtime Fool contributor Rick Munarriz has been a fan of China’s high-margin gaming stocks for a long time. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. He does not own shares in any of the companies in this story. The Fool has a disclosure policy.