How about showing a little love for China? The world's largest country and its sizzling stock market could have headed for a fall in 2006. Its economy was growing at a smoking 10% annualized clip over the three previous years. Some of the more popular stocks appeared pricey by conventional standards, and analysts had lofty profit growth aspirations.

What did we finally get?

  • An economy that actually grew by more than 10% this year.
  • Leaders such as Baidu (NASDAQ:BIDU) and NetEase (NASDAQ:NTES) that perpetually beat bottom line estimates.
  • A stock market that may no longer seem frothy after holding up well without being one of the 10 hottest overseas exchanges in 2006.

Growth continues at a wickedly delicious pace in China. That's inevitable as the pockets in this nation of 1.3 billion accumulate disposable income. The trajectory looks promising. Did you know that just 10% of the country is online?

However, even many of the darling stocks that shot up to stratospheric levels in prior years have backed that up with welcome bursts of profitability. And are the valuations still out of whack? Let's take a look at how some of the China-based companies that have made the cut in our stock newsletters are shaping up for the year ahead.

Dec. 14 Close

Forward P/E

Shanda (NASDAQ:SNDA)

$20.09

21

NetEase

$17.65

16

Baidu.com

$120.05

68

TOM Online (NASDAQ:TOMO)

$14.88

30

SINA (NASDAQ:SINA)

$29.12

29

Ctrip (NASDAQ:CTRP)

$61.37

48


Sure, some stocks, like Baidu, may appear a bit pricey on the surface. But Baidu is growing even faster than its forward multiple. It's also gaining market share in the growing Chinese Internet market, and it already has its sights set on expanding into Japan next year.

Should I insert a lump of coal at this point to take the sometimes restrictive Chinese government to task for its censor-happy ways? Maybe, yet even that hard-nosed stance is starting to soften as we head into the 2008 Olympics take place in Beijing. That alone should keep China and its leading stocks in the news over the next few quarters.

So, well done, Chinese stocks. Even if your country's calendar may not be the same as mine, here is a hopeful wish that the next 12 months prove as exciting as the past 12 have been.

There's a whole world of naughty and nice out there! Take a look at the rest of the bunch.

Baidu, NetEase, and Shanda have been singled out to Rule Breakers readers. TOM Online and SINA are Stock Advisor selections. Ctrip is a Motley Fool Hidden Gems recommendation.

Longtime Fool contributor Rick Munarriz has been a fan of China's growth stocks for several years now, even though he does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.