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Mao Money, Mao Money

Written by Brian Hicks
Posted October 17, 2005

The first time I stepped into my hotel room in China, I didn't know why it was dark. Every room I had ever entered in an American hotel-at least ones that could legitimately be called "hotels"-had at least a table lamp lit to welcome me.

There was a small plastic piece mounted on the wall to my left that read "Insert key here for power."

I came back from my recent trip to China with a drive to take part in China's boom in whatever way I could. After studying the situation closely, I realized that even though Chinese businesses don't leave the lights on all night, they'll come up short in the end if they can't find their energy key when they need it.

In 2004, widespread power failures caused what I like to call the Chinese Energy Freakout. Since then we have seen Chinese leaders resolve to never again let the lights go out. They are investing in every possible solution they can, and roaming the world to lock down their fuel supply.

China has an unrelenting need for fuel. Its GDP is growing at 9 to 9.5 percent yearly, and per capita GDP is set to increase with government help, bringing prosperity to more and more Chinese.

Since 2001, every 1% rise in Chinese GDP has brought on more than 1% increase in energy consumption.

The Chinese economy appears to be unstoppable, and even if this trend flattens out somewhat, China will still be the world's economic pacesetter.

Brother, Can You Spare A Brick?

There's a saying floating around the bars and clubs of Shanghai: "The national bird is the crane, and not the one with feathers."

Visiting China is like seeing the world's largest construction site. And if you doubt that, check this out: The government plans to construct housing for 20 million people every year for the next 10 years.

Look left and you see a building rising. Look right and you see a building rising. Look up and, if you're lucky, you see the sky.

The 2008 Olympics will be held in Beijing. Guess what that means... Even more construction, even more demand for materials, and even greater attention drawn to China's meteoric rise.

Unlike the Greeks who could barely get their stadiums built in time for the Opening Ceremonies last year, the Chinese will not be caught with their pants down.

Foreigners smart enough to profit from China's discipline won't be caught with their pants down either.

Economist Ed Yardeni calls this China's "growth imperative." I call it the economic unleashing of 1.3 billion into the 21st Century.

The 21st Century Belongs to China

China has a game plan for the 21st Century. With apologies to the Project for a New American Century and those who would like to see the U.S. remain the only superpower, China may well leave us in their dust.

Here's a quick example of the Chinese spirit and determination: The Chinese space program was not invited to be part of the International Space Station. Do you think they cried about it? As one of the Chinese astronauts who orbited Earth this week put it, "We won't beg."

China also isn't begging to be invited to the Peak Oil dance. As the world's hydrocarbon resources dwindle by the day, China-centric Asia will account for 45% of the global increase in consumption by 2025.

So, Chinese prospectors and their foreign partners are scouring the world for black gold to insure their growth. They are working on extraction from oil shale and exploring for deposits inside and outside of China, most notably in Canada. But they know that no matter how much more fossil fuel they squeeze out, it's gotta end sometime.

So China is making another move - Renewable Energy.

Like it or not, Communism gave China Five-Year Plans, which provide unified goals to a massive populace.

Where the first Five-Year Plans aimed to establish industrial capacity along western lines, China now finds itself in a position to lead the global economy, and their 11th Plan is to double 2000's per capita GDP by 2010.

The beginning of these five years is proving China to be as smart as it is big. The Renewable Energy Law, which will take effect in January 2006, is a resounding affirmation of the Chinese government's intention to move toward clean, unending energy.

The goal: By 2020, 10% of all Chinese energy will be from renewable sources.

And if the Chinese government wants something, it happens. There have been loud protests in the past against some of China's moves, but the Renewable Energy Law has prompted voices including Greenpeace and Tony Blair to applaud the "socialist market economic system" for its commitment to a better future.

From now on, renewable resources will be featured in Chinese classrooms and laboratories, creating a unity of purpose that will fuel the renewable sector's expansion for decades, even generations. But you don't have to wait that long to get in on China's success.

You already know about "the China connection" in Canada. And if you followed the oil sands plays in the Pure Energy Report, you profited handsomely. But I'm telling you that China has to diversify its energy sources. It's simply too big... and its energy needs are simply too enormous to rely on a few sources like coal, natural gas, and oil.

China Turns Toward the Rising Sun

My biggest "Aha!" moment in China was discovering why I saw mirrored satellite dishes outside so many rural homes. It turns out that they're solar reflector ovens, which heat kettles of water and cook food without the trouble of fetching kindling and breathing smoke.

China already produces 10 times as many solar water heaters as Europe, and its production of photovoltaic fuel cells increased 60.4% in 2004.

Renewable energy industrial parks are popping up all over China. They develop fuel cells and energy-saving glass for applications ranging from greenhouse farming to skyscraper construction. Remember how much China plans to build?

China is big.
China is growing.
China is smart.

The Chinese middle class is bustling, bringing about the introduction of high-end international brands. These days, consumers can afford to buy Nike and Adidas, though domestically-produced rivals enjoy a large portion of most production sectors.

Primary product imports (i.e. iron ore, oil) to China increased by 26 percent from last year, and they are likely to remain high. Chalk that up to the building boom.

But also this year China's total import rate is going to surpass its exports for the first time as percent of GDP. That's because as they move into their spiffy new apartments, China's urban middle class is shifting to conspicuous consumption, and regional exporters are having a field day.

As the saying goes, a rising tide lifts all ships, and no one knows that more than Singapore, the Philippines, and other Asian countries who invested heavily in China's industrialization.

The Asian markets are running on a loop, with China at the beginning and the end.

For American investors, this means an Asian smorgasbord, but it's not sushi or chow mein. There is an appetizing array of Asian firms and foreign partners to choose from.

The average Asia-focused investment fund has enjoyed a 30 percent boost over the past year.

Understanding the forces currently at work takes a recasting of the traditional American view of China. This means forgetting all the films you saw in school of throngs of Chinese workers in blue shirts riding bicycles.

This year, 6.4 million cars are expected to be sold in China. By 2008 that number will be 15 million. That means that one-fourth of the cars being bought worldwide will be bought in China.

In the transportation industry, the Renewable Energy Law facilitates a cross-pollination of concerns: With 1.3 billion people all striving to drive in the coming years, pollution and congestion will be major problems, so Chinese developers are working with Dupont and other foreign firms to get fuel-cell scooters to market by 2007.

No matter what dilemmas China faces in the coming years, it will face them head-on. China is a sleeping dragon that has finally woken up. It can be scary if you've never seen such power before, but foresight tells us we should get on the dragon's good side.

China is moving fast. You want to move with it. And in the coming weeks, I'm going to show you exactly how.

Sincerely,

Sam Hopkins


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