China's back. Despite February's debacle, its stocks have clawed back to hit fresh all-time highs. In fact, despite the rocky year we're having, the Shanghai Composite Index is trading 15% higher thus far in 2007. That's on top of rising 130% last year.

There's a good chance that this is news to you. Playing down the recovery in one of the world's fastest-growing economies has been a passion for some.

China has done its best to ice down the red-hot equities, with rate hikes, an increase in margin requirements, and prohibiting companies from issuing secondary offerings for the purpose of buying stocks. It hasn't mattered. The speculative froth continues to form.

Like a bull in China's shop
Perhaps the biggest reason that this recovery has fallen mostly on deaf ears is that many stateside investors aren't feeling the same kind of love. They have taken a cautious stance when it comes to buying back in. That's clearly evident when we see how the closed-end mutual funds that specialize in China are doing.

% off 52-week high

Greater China Fund

(29.4%)

Morgan Stanley China

(10.5%)

JF China Region Fund

(18.7%)

China Fund

(13.6%)

The apathy runs deep. How can I tell? Well, because the underlying assets of these funds haven't exactly been laggards. Most of these funds were trading at slight premiums to their net asset values a few weeks ago. These days,  they trade at an 8% to 13% discount. That is the collective market voting with its feet. It may be hearing about the new highs, but it just doesn't believe it.

To be fair, you probably wouldn't believe it, either, if you go by some of the more popular Chinese stocks. China Mobile (NYSE:CHL), the fast-growing mobile operator that should be soaring with its 301 million (and counting) subscribers, is trading nearly 11% below its 52-week high.

And you know what? China Mobile is a relative beauty compared with the declines that some of the country's other stocks have endured.

March 21

% off 52-week high

51job (NASDAQ:JOBS)

$16.50

(48.3%)

China Life (NYSE:LFC)

$43.49

(24.8%)

Baidu.com (NASDAQ:BIDU)

$100.97

(24.7%)

NetEase.com (NASDAQ:NTES)

$18.47

(27.5%)

Sohu.com (NASDAQ:SOHU)

$22.25

(24.4%)

eLong (NASDAQ:LONG)

$10.12

(38.3%)

It shouldn't be that way. These companies are in all of the right areas. If you are serving an economy that has grown at a 10% annualized clip over the past few years, you should feel comfortable pitching job recruiting, life insurance, online games, Internet usage, and travel.

Sure, you can quibble. eLong isn't growing as quickly as it should in travel, and Sohu has gone through more costume changes than a Madonna-David Bowie double bill. And obviously, it's naive to think that a rising tide lifts all boats. There are still stocks hitting 52-week lows stateside, even as the S&P 500 hits new highs.

However, the combination of depressed prolific stocks and the steep discounts that can be found in once-buoyant closed-end funds are telling. The Chinese government succeeded in cooling off the market.

The catch here is that Beijing convinced us, but not its citizenry of 1.3 billion. So what is more likely? That the markets will follow our bearish breadcrumbs lower, or that we'll have some sense knocked back into our noggin and bid up China's growth potential accordingly?

Something tells me we were duped.

If you don't want to get fooled again, consider subscribing to the Global Gains newsletter service so you can learn to spot great international stocks before the rest of the world catches on. You can get an early jump on what to look for by taking a free 30-day trial today.

Baidu.com and NetEase have been recommended to Rule Breakers subscribers.

Longtime Fool contributor Rick Munarriz is a fan of China's growth story but 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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.