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Everyone who thinks that the Chinese economy is in a big bubble that is about to burst, better think again, especially after the country's central bank cut reserve ratios for the second time last Saturday. China's big red bubble is ahead of us!

China's central bank action replicate those of Japan's central bank in the aftermath of the Plaza Accord in 1985, which added fuel to the country's ongoing asset bubble at that time, helping it blow for another five years. This policy shift presents a good opportunity for investors to make hefty returns, provided that they invest in the right assets.

Here are four trades investors may want to consider:

First, buy state-owned enterprises like China Petroleum & Chemical Corp. (NYSE:SNP), China Mobile (NYSE:CHL), and CNOOC Ltd (NYSE:CEO) that trade on U.S. Exchanges.

Second, buy private Chinese enterprises like Baidu, Inc. (NASDAQ:BIDU) Sina Corp (NASDAQ:SINA) Youku (NYSE:YOKU) Sohu.com Inc. (NASDAQ:SOHU), and so on.

Of these first two, which group is a better investment choice?

The obvious answer is the group of private companies. The problem, however, is that China isn't a market economy, but a cocktail of markets and central planning without clear and transparent rules; a system where "private enterprises" aren't really private. This means that investors in such enterprises assume a far higher risk in investing in private enterprises than in state-owned enterprises (as its confirmed by the higher beta).

Compounding the problem, private Chinese enterprises are at the mercy of imitation and intense competition from newcomers followed by price destruction that undermines their profitability, and ability to grow. This isn't the case, however, with state-owned enterprises that usually enjoy a monopoly or near monopoly position, and steady prices.

Third, buy commodities. A reflation of China's bubble is bullish prospect for energy and resource suppliers that have rallied since the release of China's GDP data last week: Freeport-McMoran Copper and Gold (NYSE:FCX) up 2.25%, Rio Tinto (NYSE:RIO) up 4.42%, BHP Billiton (NYSE:BBL) up 3.79%, iShares Silver (NYSEARCA:SLV) up 2.12%, and Market Vectors Oil Services ETF (NYSEARCA:OIH) up 1.30%.

Fourth, buy American companies with a large presence in China. Everyone who has visited China in recent years (I just came back) cannot help but notice four American companies with a big presence in China: Yum Brands (NYSE:YUM)--Pizza Hut, Kentucky Fried Chicken, etc.-close to 4000 branches in China; McDonald's (NYSE:MCD)-1300 stores and another 700 underway, Coca Cola, and Starbucks (NASDAQ:SBUX)-500 branches in China.

Disclosure: I am short SLV.

Source: How To Ride The Reflation Of The Chinese Asset Bubble