The China stock market is obviously a bubble that will surely burst. Two good examples:

1) More brokerage accounts were opened in one week in 2007 than the whole 2004.
2) China Life, a local life insurer, is trading at 200 times of P/E

Since November, I have gradually downsized my exposure in the China market from a peak of $40,000 to about $5,000 now. It is always good to know when to call the stop.

As China's stock market continues its record-breaking rally, regulators are increasingly expressing concern that the country's growing ranks of investors are doing everything from mortgaging their homes to borrowing against their credit cards to get in on the action.

China's stock-market benchmark, the Shanghai Composite Index, rose 130% in 2006 and has continued to soar this year, placing Chinese stocks among the world's top performers. Yesterday, the index gained 2.2% to 2945.26.

In a frenzy that recalls the late-1990s dot-com boom in the U.S., the rally has drawn in a new generation of investors. Online trading is spreading rapidly, and in recent weeks individuals have been opening stock-trading accounts at the rate of about 90,000 per day, 35 times the pace of a year earlier.

...

The valuations of some Chinese stocks are "approaching bubblelike levels," said Michael Hartnett, global emerging-markets strategist at Merrill Lynch. In particular, the shares of some Chinese financial institutions are now trading at between four and five times their book value, which is roughly double the equivalent figure for their U.S. counterparts.

According to investment bank UBS, Chinese stocks now trade at a price/earnings ratio of about 33 times, while Hong Kong stocks are closer to 18 times. Most analysts say stocks in China will remain expensive because the market is too small in comparison with the overall economy and the nation's $2 trillion in bank deposits.