Nice Place to Visit; But you don't necessarily want to invest there. Consider this: China's economy more than doubled over the last decade, but an index of its stocks was down two thirds.(Cover Story)

Byline: Allan Sloan, Sloan is NEWSWEEK's Wall Street editor. His e-mail is sloan@panix.com.

Think of the opportunities to make money investing in an enormous, rapidly developing country that spans a continent. It's a place that welcomes foreign investors, and has a capitalistic culture and an eager, hardworking population. It sure sounds like China in the 21st century, doesn't it? But I'm talking about the United States of America in the 19th century. And thereby hangs our tale. And it's a cautionary one.

While almost everyone thinks that the Chinese economy is a can't-miss bet, that doesn't make Chinese stocks a can't-miss investment. These stocks are exceptionally tricky for amateur U.S. investors who don't know the country, don't speak the language and don't know how business is done in a former communist country whose financial markets are an Asian version of the old American Wild West.

That's why history matters. Before you rush to buy any Chinese stocks--including the five dozen or so listed on the New York Stock Exchange or the NASDAQ market--remember what happened to European investors who thought the United States of 150 years ago was a can't-miss market. They put a ton of money into American investments--and got trashed. Sometimes that happened because they didn't know the rules here. And sometimes it happened because the rules changed, or because someone just flat-out cheated them.

Frances Dydasco, the Singapore-based manager of T. Rowe Price's New Asia Fund, says there's a lesson to be learned from the way that Barings, then a pre-eminent British banking house, lost its shirt financing U.S. railroads in the 19th century. "The country was growing and made good use of the railroads," Dydasco says. "But Barings lost so much money that it had to be rescued by the British government."

Similarly, foreigners investing in China today had better be ready for anything, she says: rules there have a tendency to change, and once investors have plunked down their money to finance a railroad or a power plant or a mine, they can't leave the country and take the asset with them if they don't like what happens.

If this sounds like I'm just being a fuddy-duddy, consider this. The Chinese gross domestic ...