Chinese Picks and Shovels

Written By Nick Hodge

Posted February 8, 2011

The anxiety you have about China isn’t unwarranted…

They pose a threat to not only our status as world’s biggest economy; but also to our position as the world’s only superpower.

Their quick-moving economy means less American jobs, less oil to share, fewer resources to compete for, and a challenge to our currency’s reserve status.

But all the worrying done about China-as-threat comes with one great expense: overlooking China-as-opportunity.

Chinese picks and shovels

Take a look at a picture of Shanghai in 1990:

Shanghai 1990

And then again in 2010:

Shanghai 2010

Do you know of anywhere else on the planet where progress is happening that fast?

That’s exactly why China is an investment hot spot…

Billions worth of resources are used every day to sustain this decades-long construction boom: steel, copper, aluminum, and most of all energy are what China needs to continue growth at current rates.

And just as Samuel Brannan made more money selling picks and shovels to gold rush miners than the actual miners… you can make serious investment dollars by seeking out the companies providing the resources for China’s economic boom.

For China, spending is investment

Right now, China has 10.8 GW of installed nuclear capacity. The goal for 2020 is 80 GW — a 641% increase.

It has 44 GW of wind. The goal for 2020 is 248 GW.

It has only 625 MW of solar. The goal for 2020 is 17 GW (the biggest percentage growth by sector at 2,620%, but a small percentage of total generation).

It has 214 GW of hydro and plans to double it to 449 GW by 2020.

Overall, China will spend $1.7 trillion “building electricity infrastructure” in the next decade, according to its own Electricity Council.

Take a look at a fancy chart I have of it:

China Cleantech Growth Chart

An additional $606.6 billion will be spent on high speed rail in the next four years.

They don’t call that wasteful spending; they call that beating America to become the world’s number one economy.

Feeding the beast

Growth like the picture of Shanghai above is happening in dozens of cities across China. And it’s created an insatiable appetite for natural resources.

To satiate that hunger, China’s buying and hoarding all the resources it can get its hands on — driving up prices in the process.

Copper just hit an all-time high and it’s forecast to increase this year and next, with the Wall Street Journal citing “expectations of strong demand from key metals consumer China.”

Chinese papers reported this week China Steel will raise prices by 15% for April and May.

Just before China began a one-week break for the Lunar New Year, steel rebar futures in Shanghai closed at a record $777.09 per metric ton “driven by rising cost of iron ore and coal and expectations of a pickup in steel demand.”

Iron ore is seen hitting a record $165 per tonne next quarter.

As the world’s largest coal consumer (3.2 billion metric tons per year) China is also helping drive up coal prices. Floods in Australia — a big coal exporter — have sent prices sharply higher in recent weeks, and UBS believes they’ll head higher when Chinese traders return from break…

BP recently stated China will overtake the U.S. as the biggest consumer of oil in the next 20 years.

Just this week, China announced it would start stockpiling rare earth metals, giving them “increased power to influence global prices and supplies in a sector it already dominates,” according to WSJ.

In December 2010, the country imported 2,999 metric tons of uranium — a tenfold increase over the previous December.

You get the idea.

China is going on a Sheen-like binge for natural resources, and they’ll be driving up prices for years.

Buy resource ETFs. Buy metals ETFs. And be on the lookout for companies with access to resources that China desperately needs and wants.

China shouldn’t be a source of anxiety and woe — but rather a source of competition and profit.

Call it like you see it,

Nick Hodge

Editor, Energy and Capital

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