According to a statement from the finance ministry, “[The new rules] will help to protect investor interests and maintain capital market order, and to promote healthy development of the capital market.”

The new rules dictate that auditors must generate a minimum of RMB 80 million in annual revenues, up from only RMB 16 million. Additionally, auditors must have at least 200 certified accounts, whereas previously only 80 were required.

While further measures are certainly needed to fully restore confidence in Chinese equities, this week’s actions are a move forward and build on January’s news that U.S. and Chinese regulators were renewing talks to allow American inspections of Chinese audit firms.

FSPI offers investors an opportunity to invest in a fast-growing, dividend-paying, profitable company in the healthcare sector. RedChip has initiated coverage with a Buy rating and a 12-month price target of $3.00, a potential upside of nearly 100%. Click here to download the report.

RedChip Research also issued a quarterly update on China Bilingual Technology & Education Group Inc. (OTC BB: CBLY), which operates three private boarding schools serving K-12 students in China. CBLY’s recent acquisition of its third school is expected to drive strong revenue and EPS growth as the Company ramps up enrollment at the new facility. RedChip analysts have raised the target price on CBLY from $4.40 to $5.00, a potential upside of more than 400% from the current share price. The research update is available for download here.

Disclosure: The subject security is a client of RedChip Companies, Inc. RedChip Companies, Inc., employees and affiliates may have positions and affect transactions in the securities or options of the issuers mentioned herein. For full financial disclosures for all RedChip clients, please visit http://www.redchip.com/disclosures.asp?src=rcv.

Growth in domestic consumption is being driven by China’s smaller cities. “The China story is increasingly about Tier Three cities,” Andy Rothman, the China macro strategist for CLSA, said to CNBC. “It’s where much of the growth is coming from, and where a lot of spending on public projects and low-income housing is going.”

While there is no specific definition of what is a third-tier city, it’s generally accepted that first-tier cities are represented by Shanghai, Beijing, Shenzhen, and Guangzhou. According to international property brokerage Knight Frank, China’s second-tier cities have populations greater than three million and minimum per-capita GDPs of $2,000 (USD). By this definition, there would be some 60 second-tier cities. With more than 650 cities across China, this means nearly 600 would fall into the categories of third- and fourth-tier cities.

China’s ongoing urbanization trend continues to fuel growth in its third- and fourth-tier cities, and in central and western provinces, China’s “Go West” policy continues to gain traction. The confluence of these trends is resulting in substantial growth amongst China’s middle class, creating strong demand for affordable housing options in these regions.

One way to play this new growth driver is through leading third-tier and fourth-tier city property developer China HGS Real Estate, Inc. (NASDAQ: HGSH). The dominant player in its home market of Hanzhong, HGSH attained National Grade-I certification in October 2011, allowing it to expand into lucrative markets in other central and western provinces in China.

HGSH has completed and fully sold seven projects totaling an aggregate gross floor area (GFA) of 6.7 million square feet. Its completed projects have included low-rise, mid-rise, and high-rise residential offerings.

The Company maintains a robust project pipeline, currently totaling an aggregate GFA of 6.4 million square feet across four projects. While past projects have included small-scale integrated commercial developments, such as retail offerings in lower levels of high-rise buildings, HGSH is now moving toward larger-scale mixed-use developments that will combine hotels, restaurants, and expanded shopping into its residential communities.

While inflated property prices in China’s top-tier cities grab regular headlines, housing remains substantially more affordable in the third-tier and fourth-tier cities of the country’s central and western provinces. A driver behind this variance is the heavy use of mortgage financing in the mega-cities versus the more typical high down payment or all-cash purchases in smaller cities. Approximately 70% of HGSH property buyers complete all-cash transactions, reducing sales volatility from policy changes impacting the mortgage market.

There is no question the next wave of China’s growth will be fueled by rising standards of living in third-tier and fourth-tier cities, and much of this growth will take place in the country’s central and western provinces.  In fact, per capita GDP in the Company’s home province of Shaanxi is forecasted to increase more than 100% by 2020.

HGSH provides a great way to play this monster trend. With a price-to-earnings ratio of less than two, a nearly 35% operating margin, and a robust pipeline of projects to fuel growth, the Company’s shares represent a tremendous opportunity for investors who act fast. Moreover, as a NASDAQ-listed company, HGSH must take action to regain a share price of $1 to maintain its listing. With the effort the Company has expended to get listed in the first place, we believe HGSH has every reason to make sure this happens very soon. This alone represents nearly 50% upside, and even then, HGSH shares will remain dramatically undervalued by any typical measure.

Disclosure: The subject security is a client of RedChip Companies, Inc. RedChip Companies, Inc., employees and affiliates may have positions and affect transactions in the securities or options of the issuers mentioned herein. For full financial disclosures for all RedChip clients, please visit http://www.redchip.com/disclosures.asp?src=rcv.

The Public Company Accounting Oversight Board, an audit watchdog organization overseen by the SEC, wants U.S. and Chinese inspectors to conduct joint reviews of Chinese audit firms, including Big Four affiliates located in China.

As the China small-cap sector continues to rebound from last year’s implosion, investors should keep an eye on this interesting development in the weeks ahead.

While the Company is currently working to finalize the acquisition, some investors have expressed frustration over the delay. Thankfully, calmer heads have prevailed and the stock remains unaffected. Bottom line, the Company listened to shareholders and is moving forward to acquire this facility in an all-cash transaction. To that end, they have already paid for over 80% of the cost.

China is expected to account for 40% of the world’s oil demand growth this year, and as a dominant player in its regional market, LPH is strongly positioned for robust growth. The Company generated revenues of $204.8 million for the first five months of the fiscal year ending June 30, 2012. Historically, the second half of the fiscal year is stronger than the first for LPH, with revenues peaking in the fourth quarter. If this pattern holds true—and there’s no reason to believe it won’t—LPH is well on track to meet its guidance of $576 million in revenues and $78 million in net income for fiscal 2012.

LPH is tremendously undervalued, trading at less than 2x earnings while growing at double-digit rates. The Company’s stock price has yet to recover from last year’s implosion in the China small-cap sector, which depressed the valuations of numerous companies. With LPH, investors have a company with a proven business model, strong growth, and a huge pending acquisition, trading at rock-bottom prices. Investors who add LPH to their portfolio today will be positioned to profit as the shares continue to rebound.

The success of LPH’s Gujiao facility, acquired in 2009, gives investors a preview of what to expect with the Huajie asset purchase. While LPH was able to generate $188.3 million in revenues in its first full year of operations of the Gujiao facility, accounting for nearly 40% of Longwei’s fiscal 2011 sales, the Huajie acquisition is expected to generate $300 million in revenues during its first year of operations. To learn more about LPH, you can take a video tour of LPH’s Taiyuan City and Gujiao facilities or view the Company’s presentation from our latest virtual conference.

Disclosure: The subject security is a client of RedChip Companies, Inc. RedChip Companies, Inc., employees and affiliates may have positions and affect transactions in the securities or options of the issuers mentioned herein. For full financial disclosures for all RedChip clients, please visit http://www.redchip.com/disclosures.asp?src=rcv.

Big-bank Chinese IPOs also suffered in 2011 due to high-profile scandals such as Longtop Financial (LFT), which was dumped by its Big 4 auditor and recently deregistered by the SEC. The average China-based IPO was down 48% in 2011, according to Forbes.

Even legitimate companies got swept up in the deluge. L & L Energy (NASDAQ: LLEN), a U.S.-based coal mining company operating in China, was targeted by a short-selling outfit and subsequently hit with an attempted class-action lawsuit. Although the short seller’s “report” was easily refuted and the lawsuit never found its lead plaintiff, the strong negative sentiment sent LLEN’s stock into a tailspin from which it has yet to recover.

These days, the storm amongst China small-caps appears to finally be over. The hysteria surrounding the sector died down as the short sellers moved on to new targets. Financial journalists moved on as well, drawn by the eurozone crisis and the Occupy Wall Street movement. During the first six months of 2011, TheStreet.com published approximately 30 articles on the China reverse merger implosion. Since the beginning of July, the financial website has published only two.

In the end, the sector is undeniably stronger now that the bad apples have been shaken out. Many of the companies left standing have sound fundamentals, low valuations, proven management teams, and tremendous growth. As the trepidation surrounding China small-caps continues to fade, these stocks are poised to rebound in 2012:

Longwei Petroleum Investment Holding Ltd. (NYSE Amex: LPH), a fuel storage and distribution company operating in Shanxi Province. The Company achieved record earnings in FY11 and is set to nearly double its storage capacity with the planned acquisition of a 100,000-metric-ton storage facility. Currently trading at a steep discount to earnings, LPH has significant upside potential for investors.

Lentuo International Inc. (NYSE: LAS), an auto dealership operator based in Beijing. China is the world’s largest vehicle market, and Lentuo has a well-regarded brand name with a 16-year market presence. The Company has nearly doubled its dealership network over the past seven months and continues to grow its high-margin repair and maintenance segment.

China Bilingual Technology & Education Group Inc. (OTC BB: CBLY), which operates three private schools in central China. CBLY has 50% net margins and strong historical annual revenue and net income growth. The Company is expected to generate large returns in 2012 due to the addition of its recently acquired third school.

Dehaier Medical Systems Ltd. (NASDAQ: DHRM), a medical device developer and supplier. DHRM’s products capitalize on the rapidly growing demand for respiratory and oxygen homecare products in China. The Company grew revenues substantially for the first nine months of 2011 and recently entered the European homecare market.

To learn more about LPH, LAS, CBLY and DHRM, you can visit our Research homepage to download the most recent analyst reports on these four companies. You can also visit the archive of our latest virtual conference, which featured executive presentations from LPH, LAS and CBLY.

Disclosure: The subject securities are a client of RedChip Companies, Inc. RedChip Companies, Inc., employees and affiliates may have positions and affect transactions in the securities or options of the issuers mentioned herein. For full financial disclosures for all RedChip clients, please visit http://www.redchip.com/disclosures.asp?src=rcv.

To prepare their children to study abroad, many families in China’s growing middle and upper classes are sending them to bilingual schools such as those run by China Bilingual Technology & Education Group Inc. (OTC BB: CBLY), an operator of private K-12 boarding schools in central China. English language and cultural skills are a core focus of CBLY’s curriculum, and its graduates emerge well-prepared to study abroad or in China’s top universities. The Company’s schools regularly rank among the top schools in their respective regions for national college entrance exam scores and college entrance rates. CBLY’s 2011 graduating class had a 99% college acceptance rate, nearly four times the national average, with nearly half of the new graduates accepted to an overseas university or a top-tier Chinese school.

This outstanding track record has students practically lining up to get into CBLY’s schools. Nearly 9,600 students competed for 1,000 available spots last year. The demand for CBLY’s services is extremely strong—and now, the Company has plenty of room to capitalize on it. In September, CBLY acquired a K-12 boarding school that effectively doubles the Company’s enrollment capacity to 20,000 students. Only about 3,000 students currently attend the recently acquired Shanxi South Campus (formerly Shanxi Rising School), creating a huge organic growth opportunity for CBLY. The Company expects to bring its schools to full capacity over the next 18 to 30 months.

CBLY recently changed its fiscal year end from December 31 to August 31 to better reflect the school year, which typically runs from September 1 to August 31. The change in fiscal year end also enables the Company to incorporate a full year of operational results for fiscal year 2012 of the newly acquired school. Given the strong growth in enrollment rates expected over the next two years, it’s only a matter of time until the market becomes aware of CBLY.

Trading at a steep discount to its peers, CBLY is poised to benefit from the rebound in select China small-cap stocks following the massive sell-off that rocked the sector earlier this year. As we previously discussed, the Company’s straightforward business model is easy for investors to understand, as are the growth drivers in the China education space. CBLY has 25% historical top- and bottom-line growth and operates with an impressive 50% net margin rate (the Company is exempt from paying corporate income taxes).

You can learn more about China Bilingual’s academic model and facilities by watching our video tour of the Company’s Shanxi Modern Bilingual School, which includes interviews with CBLY’s management, faculty and students. Our latest research update on CBLY details why the Company is a small-cap stock that could generate large returns in the year ahead.

Disclosure: The subject security is a client of RedChip Companies, Inc. RedChip Companies, Inc., employees and affiliates may have positions and affect transactions in the securities or options of the issuers mentioned herein. For full financial disclosures for all RedChip clients, please visit http://www.redchip.com/disclosures.asp?src=rcv.

While the short-term picture is murky, and results vary widely, the larger macro-environment is extremely clear: the vehicle penetration rate in China has a long way to go before it catches up to the rest of the developed world. Recent data shows China having a mere 70 vehicles per 1,000 inhabitants. This compares to 601 vehicles per 1,000 inhabitants in Italy, 551 vehicles per 1,000 inhabitants in Germany, and 450 vehicles per 1,000 inhabitants in the U.S.

One reason for the conflicting short-term results is China’s enormous swing from an environment favorable to vehicle sales to one that has become extremely restrictive. Government incentives for first-time car buyers, which drove record sales across China, expired at the end of 2010. The pendulum then swung the opposite direction in China’s largest auto market, Beijing, when city officials implemented a restrictive license plate lottery system aimed at curbing traffic congestion. As a result of the policy change, vehicle sales in Beijing dropped nearly 50% year-over-year in the first half of 2011.

One company navigating these challenges is Lentuo International (NYSE: LAS), the largest non-state-owned automobile retailer in Beijing.

LAS reacted swiftly to the policy changes, implementing a multifaceted growth strategy focused on geographic expansion and broadening its brand portfolio. The Company has nearly doubled its dealership network over the past six months, including three dealerships in markets outside of Beijing that are unaffected by the vehicle registration lottery.

Another area of focus for LAS is its growing repair and maintenance segment. Research giant IBISWorld has forecasted China’s auto repair industry to grow at double-digit rates over the next five years, reaching $9.1 billion in 2016. As a high-margin business for LAS, the Company has focused on implementing attractive incentive programs for its repair services to build its customer base. With the Company’s reputation for providing excellent customer service, this should result in a long-term positive impact on its bottom line.

Together, these new initiatives have enabled LAS to grow in the face of market headwinds. On the surface, this growth has been hidden to investors that haven’t taken the time to look deeper. This type of oversight creates an opportunity for those that do take the time.

Since the policy change, LAS has managed to grow revenues each quarter. On a quarter-on-quarter basis, revenues grew 9.3% in the second quarter and 14.4% in the third quarter. If LAS continues this type of growth in the fourth quarter, which can be expected by the Company’s fiscal guidance, it will be in the position to report nearly 40% year-over-year revenue growth in the first quarter of 2012. That’s the type of performance that will catch the attention of major investors.

Investors who take a position in LAS now have an incredible profit opportunity: a strong growth, NYSE-listed, shrewdly managed company with a Big 4 auditor, trading at an extremely low valuation. You can learn more about LAS by watching the Company’s presentation from last week’s RedChip virtual conference.

Disclosure: The subject security is a client of RedChip Companies, Inc. RedChip Companies, Inc., employees and affiliates may maintain positions and affect transactions in the securities or options of the issuers mentioned herein. For full financial disclosures for all RedChip clients, please visit http://www.redchip.com/disclosures.asp?src=rcv.

The short sellers who stoked the rampant fear amongst investors, after shaking many of these stocks down to price-to-earnings ratios of one or less, appear to have moved on to bigger and better targets.

While it will take time for the broader space to fully recover, select China small-cap stocks, those that investors have fully vetted and have strong confidence in, have begun to rebound sharply. One example of this is the recent 70% surge in Longwei Petroleum (NYSE Amex: LPH), a fuel distributor in China with strong margins that sells fuel at a profit to industrial customers and gas stations. Coming off sub-dollar prices, LPH closed last week at an impressive $1.53 per share. To learn more about LPH, check out this exclusive video tour of its facilities.

With the growing dearth of short seller hit pieces, the true fundamentals of companies like LPH are now being weighed by investors. One reason we believe LPH has rebounded so sharply, in such a short time frame, is the fact that it has a simple business model; one that is both easy to understand and easy to verify. This has given investors the needed confidence in the stock, and as the deluge of selling has finally abated, the buyers have jumped back in full force.

Another China small-cap with a simple business model that is both easy to understand and easy to verify is China Bilingual Technology & Education Group (OTCBB: CBLY). Founded in 1998, CBLY is an education company that owns and operates high-quality, K-12 private boarding schools in China. Unlike a complicated biotech or difficult-to-understand technology company, education is something most investors can understand, and CBLY’s students, which produce the Company’s revenue via tuition, room and board, are something that is easily verifiable in the due diligence process. The Company currently operates three physical schools encompassing the kindergarten, elementary, middle and high school levels with approximately 12,600 students and 2,000 faculty and staff.

Earlier this year, Dave Gentry, president of RedChip, conducted a video tour of CBLY’s Taiyuan City campus, Shanxi Bilingual. In the video, aside from the campus tour, investors can see and hear from students, faculty and staff.

Since the recording of the video tour of Shanxi Bilingual, CBLY has closed the acquisition of an even larger school campus, Shanxi Rising. Founded in 2002, the newly acquired school is a K-12 private boarding school with approximately 3,000 students currently enrolled and a total capacity for approximately 10,000 students. The campus, located in Jinzhong City, near the Company’s headquarters in Taiyuan City, spans 82 acres and is comprised of over 2.3 million square feet of facilities, including 18 dormitories, academic classrooms, gymnasium, theater, natatorium, cafeteria, and other administrative and academic buildings. Following are pictures of this sprawling state-of-the-art campus:

The growth drivers in the China education space are also easy for investors to understand. Education is the third largest consumer spending category in China, behind only food and housing. China’s well-publicized one-child policy, wherein each child has two parents and four grandparents fully invested in the child’s future success, is fueling this trend. Additionally, the desire to help their children compete in the global business community drives parents to seek out schools like CBLY, where English language and cultural skills are a core part of the curriculum.

The broad understanding of education and the ease with which investors can verify the underlying businesses in the space are two reasons we believe the industry never succumbed to the blatant short-selling attacks that affected the broader China small-cap space. While valuations were negatively impacted, they never saw the ultra-low price-to-earnings ratios we’ve seen in other China small-caps. Companies such New Oriental Education & Technology (NYSE: EDU), ChinaEdu (NASDAQ: CEDU), and ChinaCast Education (NASDAQ: CAST) have maintained solid double digit P/E’s throughout the entire China sell-off. In fact, New Oriental today trades for 34x trailing earnings.

With a historical 25% top- and bottom-line CAGR and room for substantial organic growth with the recently acquired school, we believe it’s only a matter of time before CBLY’s stock begins a strong rebound. Moreover, thanks to its exemption from paying taxes, CBLY is able to operate at a 50% net margin. At a P/E of only 3x trailing earnings, CBLY is trading for a mere fraction of the valuation of its U.S.-listed China peers. Investors have the chance to reap exponential returns from these prices as the stock begins to recover on its way to a more realistic and fair valuation.

Be sure to tune into CBLY’s presentation this week at the RedChip 2011 Small-Cap New York Conference. You can view the webcast live on Wednesday, November 9th at 4:30 p.m. EST by clicking this link, or check back for an archived version a few days later.

Disclosure: The subject securities are clients of RedChip Companies, Inc. RedChip Companies, Inc., employees and affiliates may have positions and affect transactions in the securities or options of the issuers mentioned herein. For full financial disclosures for all RedChip clients, please visit http://www.redchip.com/disclosures.asp?src=rcv.

Among the BRICS, Brazil seems most keen on providing assistance, with both its president and finance minister publicly declaring Brazil’s support for the EU. Brazilian newspaper Valor Economico reported that the BRICS might use their cash reserves to purchase German and U.K. bonds. However, Reuters reports that the other nations seem less than enthusiastic at the prospect of bailing out the EU: Russia’s central bank is “maxed out” on euro-denominated assets, India has expressed caution thus far, and South Africa remains undecided.

But what of China? The world’s fastest-growing economy is sitting on the world’s largest foreign exchange reserves at $3.2 trillion, with an estimated $1.7 billion flowing in every day. Given the circumstances, it’s hard to blame the EU’s cash-starved economies for eyeing the Asian cash cow. Italian officials recently met with China’s sovereign wealth fund, the China Investment Corporation, sparking speculation that Italy had asked China to buy Italian bonds (an allegation Italy denied). However, an adviser to China’s central bank has urged caution in buying euro area bonds, suggesting that China invest in major Western companies instead. China has accumulated approximately 800 billion euros’ worth of eurozone bonds over the past decade, and its central bank suffered a major loss from buying Portuguese debt prior to the eurozone crisis.

Last week, Chinese premier Wen Jiabao expressed support for Europe but also stressed the need for economic reform in EU nations, stating, “Countries must first put their own houses in order.” In a bold move, Mr. Wen offered to help Europe in exchange for EU recognition as a “market economy,” a designation that would adjust the way the EU imposes tariffs on Chinese exports. Under the new designation, China would be able to export more low-cost goods to Europe. China is scheduled to receive market economy status in 2016 but would prefer it sooner.

Assisting the EU seems like a logical choice for the BRICS. A eurozone debt default could negatively impact emerging economies, which export many of their goods to industrialized nations, and could ultimately dampen global growth. That being said, it’s uncertain how much a bailout would actually help. While a cash infusion may temporarily ease the European debt crisis, it won’t address the structural weaknesses that pulled the eurozone into its current financial sinkhole. Furthermore, those countries that buy bonds from debt-addled nations such as Italy (fresh off a credit downgrade and holding more debt than Spain, Greece, Ireland and Portugal combined) would face a high degree of financial risk. Some analysts are skeptical about whether the BRICS, each with different priorities and undoubtedly protective of their burgeoning economies, can even reach a consensus this week.

Whether the EU capitulates to China’s requests, or Brazil’s cheerleading brings the three remaining BRICS around, remains to be seen. The next two weeks will be critical for the eurozone, as a series of pivotal high-level meetings related to the debt crisis are scheduled to take place over the period. With pundits (and billionaire George Soros) predicting a Lehman Brothers-style eurozone collapse, it’ll take much more than a few BRICS to repair the eurozone.

We’d like to hear your take on the eurozone debt crisis. Should the BRICS purchase the government bonds of eurozone countries? Would a bailout have a significant impact at this point, or is the EU headed for an inevitable meltdown? Post your opinion in the comments (and don’t forget to sign up for the RedChip stock challenge).