China's Energy Stimulus

Written By Nick Hodge

Posted August 15, 2010

Welcome to the Energy and Capital Weekend Edition — our insights from the week in investing and links to our most-read Energy and Capital and sister publication articles.

If you’re looking for energy profits, all signs point to China.

Even with a slowdown in the second quarter, its GDP growth came in over 10% – three times higher than current growth in the U.S.

And the International Energy Agency recently reported that China consumed 2,252 million tons of oil equivalent in 2009 – good enough to knock the U.S. out of the top spot for the first time, well, ever.

With a growth machine that hungry, you can bet the Chinese are developing a multi-tiered strategy to fix it.

The Tortoise and The Hare

It’s no secret that China is whooping our butts in the energy race.

It produces 50% of the world’s solar panels, has 3 of the top 10 global wind companies, and boasts the largest installed wind market in the world.

Made possible by employing both short- and long-term strategies, China’s progress has come with some cost. But the dividends of this tortoise and hare strategy are already being reaped.

Take the current earnings season, for example.

I’ve watched (and profited) as Chinese solar company after Chinese solar company reported earnings and blew away estimates.

  • Solarfun (NASDAQ: SOLF) doubled analysts estimates and announced a strategic investment from Hanwha Chemical;

  • Renesola (NYSE: SOL) beat estimates and raised third quarter guidance;

  • China Sunergy (NASDAQ: CSUN) easily beat profit and margin estimates;

  • LDK Solar (NYSE: LDK) beat estimates for revenue and earnings, and guided full year sales much higher;

  • And JA Solar (NASDAQ: JASO) beat revenue estimates and raised its full year sales forecast by 350 MW.

And it’s not only the Chinese solar market that’s shining…

Vestas (COP: VWS) announced this week it’s received an order for 74 MW worth of wind turbine from “a major Chinese independent power producer.” It’s Vestas’ second Chinese order in a month.

And earlier this month, Minyang Electric – a top 5 Chinese wind supplier – said it has plans to raise half a billion in a U.S. IPO later this year. That comes less than one year after Asia’s largest wind power generator, China Longyuan Power Group (Hong Kong: 0916), raised $2.2 billion in a Hong Kong IPO in which Wilbur Ross took part.

But here’s the best part…

All that came before this announcement…

Almost a Billion for “New Energy”

The plan hasn’t been officially released, so I don’t have all the details yet, but China Securities Journal reported this week that the country will soon release a plan for investing $739 billion in “newly developing energy industries” through 2020.

That’s about as much as our entire stimulus.

According to China’s National Energy Administration, the money would go to “nuclear, wind, solar and biomass energy, as well as clean coal, smart grid, distributed energy and new energy sources for vehicles.”

We’ll have to wait and see exactly how that money is spent. But we don’t have to wait to profit.

I’ve found one company that has partnered with a big name Chinese firm to manufacture and sell nuclear powered desalination units. You can read about that company and its other activities in this investment prospectus.

And it’s not just clean energy that the Chinese are going after. They’re also buying up all the oil they can get their hands on. My colleague, Chris DeHaemer, recently posted a new video on how to profit from that angle.

Indeed, as the U.S. continues to wither on the vine, we’ll be increasingly looking to China’s constant growth for energy profits.

You can catch up on the rest of this week’s investment ideas below.

Call it like you see it,

Nick Hodge


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