Remember the original idea of red chips? A corporate elite with tip-top political connections and access to the best deals in China? Now, the stock exchange is reckoned to have listing applications from at least 30 hopefuls. With so many municipal authorities and state firms jumping on the bandwagon the fad looks increasingly overblown. The question is less will the bubble burst, but who will be left standing. Investment banks have been willing participants in the asset give-away of the century. A strong brokerage sales story and the fat fees from arranging injections has bound them blissfully into the bargain. Despite occasional warnings, the core assumptions behind the boom remain un-challenged: Chinese state entities will continue to sell assets below their true market worth. Why do they do this? The argument is the type beloved by brokers. Mainland enterprises measure asset sales by book value while international investors seek earnings growth. So long as parent companies or government departments inject assets at earnings multiples below red-chip levels, the juice for more share price increases remains. If that sounds like the kind of self-serving circular logic typical of any speculative bubble you would be right. Not that the argument is without merit, just that it has been applied indiscriminately and without reference to parent-company relationships or the assets on offer. Only a year ago, doleful commentators regularly told their audience: 'Red chips, worth another look?' Now analysts say improved economics, rising profitability and, admittedly, their desperate cash needs is behind firms' enthusiasm to entreat foreign investors. Viewed from China, the picture is rather different. Municipal governments see a fund-raising window and are jumping headlong through it. The game plan is less about investor relations than hauling in the cash as soon as possible. China Inc has grasped how to milk the fickle enthusiasm of foreign investors and looks to be playing this one for all its worth. In fact, a bubble based on investors' desire to believe the China investment story has been inflated. Since January 9 red chips have raised more than $6.9 billion through placements. A host of new listings will ask investors to suspend disbelief and accept all have rock-solid parent relationships with a bumper portfolio of assets to give away. Is it mere coincidence this seeming bonanza corresponds with China's renewed attempt to forge bankruptcies in its bloated state-owned industries. Vice-premier Zhu Rongji has advocated forced bankruptcies and mergers to ensure economic rationalisation. A total of $100 billion has been set aside for the task - but things would be helped nicely if foreigners were sold some of the more 'marginal' assets. The most likely scenario for a red chip melt-down is the revelation that a major company bought a worthless dog of an asset - the resulting loss of confidence could take on Albanian proportions. Dig into the numbers of many new listings and you are showing nothing more than a single year's earnings. Look further at the relationship between parent and listed entity and the incentive for business flow to be turned off once investors have been sucked in is enormous. Clearly, the gloom is not universal. Guanxi is real enough in China, but common sense says 40 companies do not have the inside track to those with the authority to give away cheap assets.