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China makes a tempting destination for growth-minded investors, for obvious reasons. But some Wall Streeters urge that you think twice before plunging into Chinese stock funds.

First off, there's limited selection. Those wishing to buy funds that invest primarily in China-based stocks will find 11 such funds, in addition to the recently launched

iShares FTSE/Xinhua China 25 Index

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exchange-traded fund, which tracks the 25 biggest and most liquid publicly traded Chinese companies.

Then there's the risk question. Everyone agrees the Chinese market is ripe with opportunity, but then people have been saying that for years. Meanwhile, political and economic questions, ranging from trade issues to currency valuations, continue to loom. Observers like Morningstar analyst Bill Rocco suggest investors approach China funds with "the same caution as they do volatile tech stocks."

It all can add up to a headache for Asia-inclined investors. For a unique perspective on the problem,

sat down with Roy Papp. Papp runs the


Pioneer Papp America-Pacific Rim fund, which invests in mostly U.S.-based companies that make money doing business in China and neighboring nations.

Papp, a former presidential appointee to the Asia Development Bank, runs the $20 million fund along with daughter-in-law Rosellen Papp. The fund, which is heavy on large-cap growth names like




General Electric

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, is down 2% this year as it struggles along with other large-cap growth funds. The fund maintains a below average expense ratio of 1.25%, but it also charges a front-end load of 5.75% -- which may be off-putting to investors, considering the breadth of better-performing no-load funds out there.


talked recently with Papp about the pros and cons of investing in the region, as well as the logic of featuring big domestic companies in an overseas-focused portfolio.

Why is investing in your fund better than investing directly in Chinese companies through a Chinese or foreign stock fund?

I lived in Manila for a number of years and traveled across the Pacific Rim extensively, so I have a great deal of experience in doing business in Asia. Based on my time there, I feel less comfortable investing in small, developing Asian companies than putting money into well-established American companies already doing business in Asia. One big reason is because we still prefer American accounting rules. Even with our faults, we are the leader in transparency. We may be moving to global standards, but we are not there yet.

The second problem is foreign exchange risk. I feel much better having American multinational companies making currency judgments as opposed to myself or a bank doing it. And if they do let the Chinese currency fluctuate, it will appreciate relative to the dollar, which would translate into fewer dollars. So the initial impact of that would be negative if you were a U.S. holder of a Chinese security. Our personal view is that it will not be freely floating for some time, but that is the risk.

How do you choose your companies?

We are China focused, but we look for companies expanding their businesses across the Pacific Rim. We don't have a particular hurdle rate or a specific percentage of revenues that come from Asia before we invest in a company.

Your portfolio leans toward companies with intellectual-based products like drugs and technology. How big a problem does intellectual piracy pose in these sectors?

We think this is a problem now, but piracy rates will start to decline in a few years. Companies like


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produce a lot of their final sales in China -- more than they sell in the U.S. or Europe. Intel sells 50% of their sales to end manufacturers and end users in China.

We hear a lot about Chinese manufacturing plants springing up. Won't this be a competitive threat to American manufacturers like Intel?

They will eat into American market share once they establish their own manufacturing base, but it's going to be at the lower levels, not the most recent technology. Intel will do assembly there, but will develop its products over here.

What is your view on the Chinese middle class we keep hearing about?

You can see the increasing middle class in the growing number of computer purchases, which is why we own


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, among other technology names. We also own an advertising company. And General Electric is selling all sorts of things for infrastructure because China is getting ready for the 2008 Olympics.


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is building 350 superstores in China in the next 12 months. They have so little there now, so the percentage growth is going to be great.

But can China maintain that blistering 9% to 10% growth rate?

They will maintain a level of growth higher than us and much higher than Europe. But I don't think they can keep up this 9%-plus growth level. I think they have made enormous strides in China to go from a communist government to a free enterprise economic -- not political -- system. That's an enormous difference. Russia is still having a great deal of trouble doing it, while China has done it without much difficulty so far.

How does America's growing trade deficit with China affect your view?

I don't think the trade deficit will continue to expand against China indefinitely. We have been trying to help them get started and enter the global community. We have been cooperating with them on many things to get them up to speed. But the U.S. government will soon be putting limitations on that. And it will be done in nice quiet meetings somewhere away from the public eye.