So far in 2008, it seemed as though China and its related exchange traded funds (ETFs) were yesterday’s news.

After all, the iShares FTSE Xinhua/China 25 Index (FXI) is down 7% this year, while the SPDR S&P China (GXC) is down 9.6%. 

But with a recent burst of activity that began last week, many investors are wondering if China’s recent corporate gains are going to start growing again. Since April 21, FXI is up 6.3%, while GXC is up 7.2%.

Since Dec. 31, the Shanghai index has corrected 45%, says Joanne Von Alroth for Investor’s Business Daily.

China’s economy is enjoying a multi-year boom with huge economic growth. Some thought the good times would continue this year as the country plays host to the Beijing Summer Olympics.

But political unrest over China’s actions in Tibet, inflation, bad weather and China’s poor environmental record threw the ETFs into reverse.

Chinese government officials refuse to accept a slowdown for long. Officials cut the stamp tax rate - tax on the purchase or sale of stocks - from 0.3% to 0.1%. Institutional investors buying or selling 100,000 or more shares are now required to do it privately to reduce volume moves.

These moves kicked off the rally that has lasted into this week. Whether it will stick is open to debate, but if China begins to head lower, have your exit strategy in place.

For full disclosure, Tom Lydon’s clients own shares of FXI.

Tags | Asia, China, Emerging Markets, FXI, GXC