WHILE China jewellery plays have surged recently, reflecting the demand for gold jewellery on the mainland, the most obvious beneficiary has yet to really perform. Fu Hui Jewellery was listed in October 1990 at $1.13 and has been a poor performer, because it was launched into a dull consumer market at a time when its claims as a China play were considered irrelevant. However, it has one particularly significant advantage in its push across the border. It is 28 per cent owned by Fujian Jewellery Import and Export Corp, which is the company's largest single shareholder - making it a ready-made ''red chip''. Based on its closing price of $1.71, the shares are trading on an historic price-earnings ratio of 9.7 and a yield of 5.3 per cent. Yet the company is on a clear growth track. In the six months to September last year, net profit increased from $21.7 million to $26.1 million and the growth track looks set. No broking houses cover the company, but provisional estimates suggest full year earnings of about $56 million, resulting in a static PE, due to the diluting effects of the placement last May. But the outlook is positive. The company has two useful backers - the Fujian provincial government and Cheung Kong, which holds a $48.5 million convertible note, converting into 37 million shares at $1.30 before next April. Fujian is a more useful ally at this stage, since it gives Fu Hui automatic access to the provincial market. At present, gold retailing is a restricted area, requiring a special licence which is given to state companies, such as Fu Hui's parent. In addition, the company has relocated its manufacturing facilities to Fuzhou to reduce production costs. This gives it an extra competitive edge for sales to the mainland. Analysts have been pushing other jewellery companies on the basis of demand for their products from mainlanders visiting Hongkong. Fu Hui is better equipped to tap this demand at source. The firm accompanied its interim results with the statement that ''the group has been and will continue to allocate more resources to penetrate the jewellery market in China''. The Cheung Kong link has also come into play, with an agreement signed with the Fuzhou Municipal Government and Mr Li Ka-shing's flagship company for a massive property redevelopment. While property diversification by a manufacturing firm may not be an ideal theme, Fu Hui is merely making use of the contacts gained from being a Chinese government joint venture. Cheung Kong provides the expertise, while the location in Fuzhou is vastly preferable to the more over-heated Pearl River delta. The cost of the development will be $3 billion, but construction costs will be in part covered by pre-sales. Fu Hui's share will be a maximum of 30 per cent. Fu Hui is a company which is likely to attract increasing attention from brokerages, as an attractive participant in a vogue sector. Its shares have had a small run, but appear to have further to go; and it offers limited downside, given its defensive market rating.