Chinese stock markets seem to be headed for free fall. The bubble is deflating and the losses for investors make what's happening in the US look like a picnic, reports the Los Angeles Times' Money & Co blog.

Investors who are losing out should remember that there are real fundamental problems with the Chinese market. Yes, it has soared and the returns have been fantastic but it's now starting to unravel because the fundamentals are wrong. As the LA Times points out, there are many stocks that report 30 to 35 times earnings. Translated into plain English, that means if you bought the entire company, barring any unexpected expenses, it would take you 30 to 35 years until you got your money back.

There are also some profoundly troubling issues with corporate governance in China. As the ISS RiskMetrics says in a new report, the Chinese market has big risks for the unwary with the Chinese government holding big controlling blocks of shares.

Also. there is more potential for confusion and leading investors astray because Chinese companies have two boards - a main board and a supervisory board. As well as that, Chinese law prohibits multiple voting rights and class actions, the rules for foreign takeovers are opaque and untested, there are serious question marks about enforcement, Chinese companies follow international accounting rules but there is a shortage of accountants and auditors, and the rules for foreign takeovers are murky and untested.

Investors face risks in this market that they don't face anywhere else.

ISS RiskMetrics is holding a webcast on this issue on Tuesday April 8. You can access that at http://www.riskmetrics.com/webcasts/2008china_hk_corp_gov/index.html.