HONG KONG: From Victoria Peak here in Hong Kong, you get a great panorama of lit-up buildings down below and more bustling city across the harbor. I can't think of a better vantage point for pondering the energy challenges confronting China, just off to the north.

In the 1980s and 1990s, a great Confidence Crisis developed in Hong Kong, which was then nearing the end of a century-long lease initiated during the reign of Queen Victoria. The world looked quite different then, with the British in the throes of their final imperial growth spurt and the Industrial Revolution transforming not only Britain but the coal-fired powers of Germany and the United States as well. Today, after more than fifty years of tripping over its own dysfunctional Marxist ideas about money, China is the coal capital, rocketing forth at 11.5% GDP growth for 2007 and feeding nearly 60% of the country's energy appetite with soot.

In the past week I've traveled through Shanghai, Xi'an--the city where the ancient Silk Road started--and the capital of one of modern China's most polluted provinces, Shaanxi.



The second my flight into Xi'an dropped below the clouds on final approach, I felt as if I were sucking on an exhaust pipe. The burnoff in the air came in through the plane's fuselage--and hit me even more strongly on the ground.

China's citizens are suffering at the rate of half a million premature deaths each year due to respiratory illness. With 17 of the world's 20 most polluted cities and over 70% of Chinese rivers and streams deemed extremely harmful for drinking and raising fish, the government knows it has to react.

After all, what good is having the world's third largest economy (a mark that China expects to hit in the next few years) if everyone is choking to death on progress?

Chinese companies like the national aluminum monopoly Chalco (NYSE:ACH) and China Shenhua Coal (Pink Sheets:CUAEF) have ridden the run-up in Shanghai and Hong Kong stocks, as well as overseas fervor on Wall Street, to massive returns over the past couple of years.But my local contacts tell me that smart greenbacks should be on Chinese clean power in the coming years. Suntech Power (NYSE:STP), a Chinese solar power company, is already one case in point.

The country's steelmaking, though, is some twenty years behind western standards. Chinese smelters still belch toxic clouds into the sky from their hyperbolic cooling towers, whereas in the UK, Germany and the US--those old industrial dynamos that have learned a thing or two from a hundred years of pollution--steel manufacturers generate electricity from their own exhaust in a process called co-generation.

The Chinese government has $1.4 trillion in cash reserves, and they're putting down heavy sums for consultants and technology to help new power generation get greener.

The Chinese Renewable Energy Law mandates a 20% increase in energy efficiency by 2010 over 2005 levels, and the Communist Party of China is also targeting renewable capacity jumps like 30,000 megawatts of wind power by 2020, up from just 1,260 MW in '05.

China is already the top producer of solar water heaters in the world, but those rooftop renewables only count for about 2% of China's total energy consumption, which now ranks only behind that of the US in worldwide tallies.

China Coughs Coal and Cash!

Carbon dioxide emissions from coal are also on track to double by 2020 from 1998 levels, easily obviating any sense of progress in household efficiency campaigns.

And with coal-based energy costing only 10 cents per kilowatt-hour and large-scale renewable generation schemes coming in at twice that cost, market pressure alone will not have the same effect as we are seeing in the world of oil vs. ethanol (where every 10-dollar threshold jumpstarts a new petroleum alternative).

So while Beijing slings $200 billion around the world with its new state-run investment fund, aiming to diversify out of its dollar-denominated cash reserves that are falling in value every day, it only makes sense that the CPC should open its deep pockets to stimulate domestic energy innovation on a larger scale.

I discussed much of this with one of my Hong Kong contacts yesterday at the high-end Tsim Sha Tsui Sheraton hotel. We each smoked a Cuban cigar, a heavy irony for me as those communists across the water from Florida remain isolated from Washington and Wall Street, but Beijing's "market socialism" is a-okay.

Despite the confidence crisis, Hong Kong hasn't crumbled into chaos under Beijing's fairly light hand (I can, after all, access the BBC and Wikipedia from Hong Kong--something I can't do on the mainland). Hong Kong enjoys the status of Special Administrative Region.

My interlocutor was the founder of investment bank Solomon Brothers' Beijing office, way back in 1989. A Hong Kong-born American citizen, he's developed a clean energy enterprise of his own, with a Shanghai office and the expertise to navigate the Beijing bureaucracy successfully, and he's embarking on exactly the sort of projects I'm talking about.

This week, Jeff Siegel and I officially launched our new hybrid service, Green Chip International. We've got contacts all over the world in this industry, and now is the time for smart energy investors to break the borders of the United States and invest in the kind of opportunities I learned about in Hong Kong. In fact, our GCI subscribers will get an in-depth report just after Thanksgiving on all my observations and investment plans I've derived from my Asian research junket.

If you're a Green Alliance member, you already have access to all Green Chip International features. To learn more, visit www.greenchipstocks.com.

Regards,

Sam Hopkins