By Stephen Vines in Hong Kong

Trade has grown since China joined the World Trade Organisation

Last year saw a flurry of new issues on the Hong Kong stock exchange and a staggering 145% increase in the H-share index which tracks shares in these companies.

To put the rise in Chinese state-controlled stocks in some perspective it may be helpful to remember that the world's best performing national stock market last year was the Thai market, which recorded a 113% increase.

It is often said that what goes up must come down - but although the prices of these shares have slipped a little recently there is no sign of any massive collapse.

On the contrary, Chinese state companies are planning to raise some $10bn this year in new issues.

Government aid

And the Chinese government is doing everything it can to encourage them - including, in the case of state-controlled banks, wiping mountains of bad debt off their books to get them into shape for a listing.

One big reason why the prices of these shares remain quite so buoyant is that they are trading on relatively modest valuations.

Chinese people are becoming more accustomed to buying shares

Most of these companies carry price-earning ratios of between 10 to 12 times, which is below international averages and suggests that even if prices continue to rise the Chinese companies are making enough money to justify even more demanding pricing.

All this adds to the growing belief that Eldorado has been discovered in what are known as H-shares.

This impression is constantly reinforced by Chinese share salesman.

I recently received yet another fund manager's leaflet urging me to pour my hard earned money into the China market.

"When is the best time to invest in China?" asked the leaflet's writer, and promptly gave the answer that "anytime is a good time to invest in China".

Over subscription

Yet this enthusiasm is reaching somewhat worrying proportions.

At the end of last year a company called China Green, which sells fresh and processed vegetables, was launched on the Hong Kong market.

The issue was oversubscribed a mind-boggling 1,603 times.

The last time an oversubscription rate even approached this level was back in 1998, with the issue of shares by a conglomerate called Beijing Enterprise.

It managed an oversubscription rate of 1,275 times. The share issue was quickly followed by a market collapse.

That collapse was part of the much wider Asian financial crisis which bought all regional markets tumbling down. Now most analysts are bullish on Asian market prospects and some are super bullish on China.

Political risk

The problem is that they are basing their optimism on data that is, at best incomplete, and where, at the end of the day, they are trading in companies ultimately controlled by the Chinese Communist Party.

The Party has embraced capitalism but is still prepared to put politics ahead of commercial considerations.