The Biggest Economic Opportunity of the 21st Century

Master investor Warren Buffett has said the 21st century will belong to China. Venture capitalist John Doerr has called cleantech "the biggest economic opportunity of this century."

Put those two statements together, and you have the makings of the biggest economic opportunity of the 21st century.

Brace yourself
See, China's economic miracle has not come without costs. One of the highest has been paid by the environment. China's factories, power plants, cities, and enormous demand for natural resources have taken a severe toll on the country -- tainting the air, the water, and the land.

China is now the largest emitter of carbon dioxide in the world. Air pollution is a significant worry for athletes preparing to compete outdoors in the Beijing Olympics, and National Geographic recently reported on the "cancer villages" that line the once-pristine but now polluted Yellow River.

The good news is that the Chinese government is no longer turning a blind eye to the problem. The 11th (and most recent) five-year plan made a national "green strategy" a core platform. That means penalties for businesses that abuse the environment, as well as a focus on conservation and emissions reduction, and an emphasis on sustainable development rather than on more rapid development at any cost.

What's said is done
Starting to clean up China and having a clean China are monumentally different realities; however, the country's Xinhua News Agency recently reported on some of the significant penalties that have been levied on polluters. For example, "Companies that were identified as violating environmental laws were barred from the Canton Fair … the most important channel for Chinese exporters to expand overseas." What's more, the China Banking Regulatory Commission has "banned loans to blacklisted companies."

In other words, bad environmental practices will get you cut off from international trade and access to capital. For a small, growing business in China, that will mean fast failure.

A blueprint for green
This is not a surprise. When the Chinese government includes a platform in its five-year plan, it means business. That's why, as an investor, one of the smartest ways to think about investing in China is to focus on trends that the government has supported on the record.

This brings us to green, clean, and alternative-energy technologies, a.k.a. cleantech. 

The China State Environmental Protection Agency estimated that investment in environmental protection would top $160 billion during the current five-year period (2006-2010). What's more, China's enormous trade surplus, significant construction plans, and new focus on green initiatives have the potential to turn the country into the world's largest marketplace for cleantech.

That's good for the environment, but what's even better for investors is that there are no state-owned companies operating in the space. So unlike most commercial niches in China, where behemoths such as PetroChina (NYSE: PTR  ) and China Mobile (NYSE: CHL  ) both dominate and are protected, the government will be very welcoming to foreign, public, and foreign and public companies in a rapidly growing space.

Straight cash
One public company that's already set to work on China's environmental issues is General Electric (NYSE: GE  ) . The company is pushing its Ecomagination initiatives hard in the country, and GE China is now more than a $5 billion business. Speaking on his company's commitment, GE China CEO Steve Bertamini told Fortune, "The Chinese will lead the way in these technologies just because they have to."

But even though China will be an important lever for GE, GE is an enormous conglomerate, and the green opportunities in China alone won't help the stock double or triple from here. And although not nearly as large as GE, the same holds true for big, well-known companies pursuing cleantech, such as BP (NYSE: BP  ) .

That, however, is not true for several innovative small companies.

Two small China cleantech plays
One is Fuel Tech (Nasdaq: FTEK  ) , which manufactures air-pollution reduction systems for use in (among other applications) coal-fired power plants. Given that China may face a 10-gigawatt energy shortage this year and already plans to build the equivalent of one coal power plant per week over the next decade, this is an enormous opportunity for Fuel Tech, a company that's already seeing adoption of its products in China and has just $85 million in trailing revenue and a $550 million market cap.

Wind power is also a candidate for widespread adoption in China. According to a recent report in Shanghai Daily, the government is thinking about increasing subsidies to wind power to expand capacity from 5,600 megawatts to 100,000 megawatts by 2020. GE's expertise in this niche means that it will almost certainly be involved, but small Chinese company A-Power Energy Generation Systems (Nasdaq: APWR  ) also moved in 2007 to "become a full-scale producer of high-quality wind turbines," according to Chairman and CEO Jinxiang Lu.

Yet both of these companies -- for good reason -- have a fair amount of optimism priced into their shares. Fuel Tech trades for nearly 75 times trailing earnings, and A-Power, which was taken public via a special-purpose acquisition company, has more than tripled since last year. In other words, these are both better suited as watch list candidates than as outright buys today.

There are more where those came from
The key to taking advantage of this enormous economic opportunity is to focus on quality and to demand the right price when you buy shares. To get after both of those goals, advisor Bill Mann and our Global Gains team are in China right now meeting with a number of companies we find particularly promising, several of which operate in the green space.

You can access our research and findings from the trip, as well as our entire lineup of current international stock ideas, with a free 30-day trial of Global Gains. There is no obligation to subscribe.

Tim Hanson does not own shares of any company mentioned. The Fool has a disclosure policy.


Read/Post Comments (12) | Recommend This Article (96)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 30, 2008, at 4:25 PM, madmilker wrote:

    great joke! Tim.....

  • Report this Comment On June 04, 2008, at 1:23 PM, CleverDan wrote:

    Sorry, but nuclear (and that means fission, currently) is the only, only technology with enough energy density to satisfy current demand and future growth in demand, while not adding to the greenhouse gas problem. Uranium - exploration, mining, and refining - and nuclear power plants - construction, equipment, and operation - are going to be the biggest growth opportunity in energy over the next 50 years, IMHO.

    Once fusion breaks even, say when they get the ITER working and proven, and the next planned experimental reactor is underway, then we'll talk about fusion. But current fusion technologies, both conventional and experimental, are far below break-even.

    My prediction is that not just uranium, but possibly to a large extent thorium will be major winners in the next few decades.

    Disclosure: I own a little bit (one share) of NLR (the nuclear ETF), CCJ (1 share), and am researching other nuclear energy opportunities. The long shot: Thorium Power (THPW), which could explode (not literally! It's non-fissile, but can breed more fuel) if the governments of Russia and the US support their technologies for burning thorium using spent nuclear weapons cores and/or regular reactor fuel - IN EXISTING REACTORS.

    Big, big government money possible, and I think they're planning on buying up some thorium mining rights too. India is going to be BIG on thorium in the next hundred years...

  • Report this Comment On June 04, 2008, at 1:59 PM, CleverDan wrote:

    BTW, disclaimer; I bought 100 shares of THPW recently and am thinking of buying more. I like it, I bought it, and I think it'll go up in the long term, not just the short term. I just hope the experiments in Russia give good results soon...

  • Report this Comment On June 06, 2008, at 11:17 AM, bwgerhold wrote:

    I do not believe the article. I have traveled in China: they do not care about the environment, public health, or their people. The country is filthy dirty - everywhere!!

    They have a population problem and a stated goal of reducing population to 800 million. Why clean up the environment when leaving it dirty will help reach the goal?

    China will make "eyewash" statements about the environment, but they mean nothing. China cares about MONEY; that's all.

    Regards Bruce

  • Report this Comment On June 06, 2008, at 1:54 PM, blackdog40 wrote:

    So basically this article tells us nothing but if we send you more money we might get some useful information.

  • Report this Comment On June 06, 2008, at 2:32 PM, robertscoville wrote:

    Blackdog40 is correct but this has been their mode of operation for several years.

    I signed up for rulebreakers and tried 5 of the monthly picks. I'm down 40 percent on those picks over a two year period.

    The only investing I can see as rock solid, especially long term, is land. There is only so much land and the number of people in this country is not going to stop growing.

    It's simple supply and demand.

    With all the forclosuers currently going on, this is a prime time to invest in property.

  • Report this Comment On June 06, 2008, at 3:31 PM, mrdlab wrote:

    Bruce's comments are simplistic, racist and untrue. I not only travelled throughout much of China, I worked there for years. The Chinese care very much about their environment, their health and their people. You would be hard-pressed to find a friendlier, more compassionate people, and their sense of family unity far exceeds ours here in the west. China IS very dirty in many places. It is also breathtakingly beautiful in others. It may interest you to note that many of any of the students in my Science classes expressed an interest in studying environmental protection in order to "help their country".

  • Report this Comment On June 07, 2008, at 8:39 AM, Nelkael wrote:

    Agree with Blackdog, yet another ad for a report. I feel like a donkey with a carrot always dangling by my nose: the next report ... always the next report...

  • Report this Comment On June 07, 2008, at 11:46 AM, FoolIggy wrote:

    Come On Blackdog & Nelkael:

    If you buy paint at the store and don't like the wall texture or don't like the color, you can't blame the store!

    I am not promoting The Fool. We all have to pay for information regardless of its ultimate value. Let's be fair and reasonable about expectations.

    Think how many people buy the next "Big Brown" in the horse world only to find out in ends up as paste!

    The Motley Fool recommends the horse. You are responsible for feeding, training, riding, and ultimately decidinig whether to run it alone or hitch it up with others to pull your wagon.

    This article opens a discussion on a 'horse' called enviornmental technology of China. If you don't like the horse, don't beat the guy to death that tried to sell it to you. No, get busy finding the next Big Brown and you too can syndicate your results to millions of others!

    The market belongs to those that act correctly, not complain about the results they didn't get! GOOD LUCK on filling your stable with fast horses & less jars of paste!

    FOOL ON!

  • Report this Comment On June 07, 2008, at 4:25 PM, Clark1547 wrote:

    East Asian Civilization was my history credit in College. I think China is an amazing country and I would love to visit there. Fantastic things have happened there.

    but

    the one thing I came away with was that the Chinese people KNOW that China is the center of the universe, and there is nothing of any real worth outside of China.

    That is not to say that businessmen won't take advantage of a situation there, such as huge profits taken from outside countries- but when push comes to shove, Its China for China first and allways.

    And Im not saying that is a bad thing either.I wish there were more American business people loyal to America.

  • Report this Comment On June 08, 2008, at 3:04 PM, bodski107 wrote:

    Gotta say...this is my first experience with Motley ( just signed up yesterday), and I am already being solicited for something else...bit discouraging!

  • Report this Comment On June 09, 2008, at 8:38 AM, Repdemlib wrote:

    OK; I like that horse but not nearly as much as the one that will exploit the oil-shale deposits in Canada. If they were viable in the 80s when oil reached $30 a barrel why on earth are we not scrambling at $130+ to encourage exploitation and get a piece of the action ? Can we blame the Canadian Ministry for the Environment ?

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