Steven Spielberg may soon resign as artistic director of the Beijing Olympics. The world is up in arms over China’s involvement in Sudan’s Darfur genocide. Why doesn’t China care? Energy is the answer, and the problem.

China says it’s trying to curb its energy consumption and intensity (how much energy is used per unit of GDP). What it says and what it does are two different things, though, especially as regards the targets that Beijing has set for national economic progress.

China is in a quandary most of the world’s poorest countries would love to face: the country is getting too rich, too fast. Sales of air conditioners, cars, and all the other status symbols of middle-class life are growing like bamboo in the Middle Kingdom, and each creature comfort of a developed country requires a hefty dose of juice.

In fact, energy consumption is growing faster than China’s GDP growth, even though the government hasn’t been able to slow down the economy as it grows at 10% per year consistently.

I’m happy to say that during my time in China in 2005, I saw plenty of solar panels. The recent initial public offering of Yingli Green Energy (NYSE:YGE) has fared well, almost doubling in price since the IPO early this June:

But national peer Trina Solar has wobbled, especially in light of the performance of that old standby, national oil company PetroChina.

Most of the solar panels I saw, it turns out, were for heating water, not generating electricity. Limited utility of new technology means old sources bear a new burden, often alone.

It’s PetroChina and its parent company, China National Petroleum Corporation, that has been the target of divestment campaigns because of that listed firm’s heavy involvement in Sudan where fighting between rebel militias and government-backed forces is reported to have killed hundreds of thousands and displaced millions.

Despite the defection of some institutional investors, PetroChina is up more than 700% in just five years. The overall market has not lost faith in China’s bull market makeup, despite the geopolitical worries.

What’s more, the Chinese government is involving itself in new high-risk energy endeavors. In Ethiopia, Somalia, Sudan, and even in China’s own Xinjiang Province where Uyghur Muslim separatists were immediately labeled “terrorists” after September 11, 2001, Beijing is dispatching more engineers and workers to secure supplies.

China is the world’s #3 net importer of oil now, behind only the U.S. and Japan (though, to be fair, China still only imports 1/4 of the oil Uncle Sam brings in). After it couldn’t meet the 2006 goal of 4% energy consumption reduction, it looks unlikely that the Chinese populace will reach anything close to the 2010 goal of a 20% cut.

So through national prospectors SinoPec, PetroChina, and CNOOC (China National Offshore Oil Company, the ones blocked by the U.S. Congress from buying California-based UnoCal two years ago this July), the Waking Dragon will keep seeking the fuel for its fire.

And for investors in traditional energy sources who know that there aren’t many options for a moral fortune in fossil fuels these days, China may still be your best bet for a power play.

Regards,

Sam Hopkins

"Energy stocks... The only way a human is going to make any money."

-- Matt Simmons, Peak Oil's first and most vocal proponent,
and founder of the country's last pure play energy investment banking firm.

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