We've all heard that the market hates uncertainty and we're now facing a period of unprecedented change and uncertainty. The inauguration of our new president may or may not help bring about a recovery in America's ailing economy. We can never predict what will happen in the long run. But in the near term, there's no question that we're facing a period of extraordinary volatility.

The new president will face enormous pressure from his own party to clamp down on what many see as unfair trade practices by Chinese industry and by Beijing's  own politicians. Calls for stern measures against Chinese exporters are nothing new on Capitol Hill. But now, with America's recession deepening and China's economy still on steroids, the pressure on President Obama to strike out against China will become enormous.

Democratic politicians in particular will be looking for action against China as a form of political payback for union support during the election. The Democratic complaint is sweeping, running from currency manipulation to the doling out of illegal subsidies to export industries. Even members of the outgoing Republican administration have joined in the action against some Chinese industries and that means some Chinese stocks will also feel the effect.

In one of her last acts as U.S. Trade Representative, Susan Schwab filed a major complaint with the World Trade Organization. She claimed that Beijing illegally aids exporters of a wide variety of products with tax rebates, cash grants and discounted loans.

Schwab's action and the potential of further measures by the Obama administration may or may not be approved by the World Trade Organization. But, whatever the outcome, there's no doubt that many Chinese exporters are operating under double jeopardy. They face a severe recession among their customer nations and they face the prospect of trade sanctions from the WTO. That means they'll be dangerous companies for investors to own for the foreseeable future.

We at the China Stock Digest have steered clear of most export-related Chinese companies for a long time, but some companies and some industries are in particular jeopardy during this time of global change and crisis.

The biggest threat faces China's booming steel industry. While U.S. steel mills have been shutting down, Chinese smelters have been exporting millions of tons of steel products to the United States. China's exports almost tripled last year and the U.S. International Trade Commission has already levied duties on some steel products.

Most of China" mainland steel companies have already been discounted and most trade only in Shanghai. But other sectors face looming troubles, including textiles, shipping, toys and apparel. They're the biggest recipients of tax rebates, government handouts and other favorable treatment which may attract negative actions attention from U.S. authorities

Here's a list of stocks that we think deserve special investor caution in the early days of the Obama administration:

· General Steel Holdings, Inc. (GSI)

Once a hot stock, General Steel Holdings has lost 75% of its value since its peak only six months ago. Fears about overcapacity as well as U.S. sanctions give this company little chance of a speedy recovery.

· Aluminum Corporation of China (ACH)

The world's largest aluminum company, Alcoa is in big trouble, shedding thousands of jobs, closing smelters and facing a possible debt crunch. China's growing economy won't save Aluminum Corporation of China as global metal prices fall due to the pressures of the worldwide financial crisis.

· TBS International Limited (TBSI)

TBS International is an ocean transportation services company that's having trouble keeping profits afloat as worldwide trade goes into decline. The company depends on traffic through trade routes between Latin America and Japan, South Korea and China, and as we all know, everyone in the export business from China is feeling the pressure of plummeting volume and declining revenues.

· Seaspan Corporation (SSW)

Seaspan faces many of the same challenges as TBS International. This containership company still produces a big dividend, but there's no certainty that its dividend is safe as revenues drop sharply.

· China Linen Textile Industries (CTXIF)

Remains in double jeopardy as trade sanctions and demand declines loom over the firm's bottom line.

· China Premium Lifestyle Enterprise, Inc. (CPLY)

China Premium sells luxury apparel, a specialized line of products that could be the first to be hit as global financial crunch hits the high end of the market.

· Jingwei Textile Machinery Co. Ltd. (HKG:0350)

Jingwei has seen its profit margin go suddenly negative as the era of expanding demand for textiles from Asia comes to an end. China's textile machine companies will be among the last to recover from the decline in demand for finished products.

· Texhong Textile Group Ltd. (HKG:2678)

With eleven factories producing cotton, Texhong is still spinning profits but we remain nervous about sustained demand in companies beyond its Chinese customer base.

· Goldlion Holdings Limited (HKG:533)

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Committed to your PROFITS from China,

Jim Trippon,

Editor in Chief

China Stock Digest