Growth in China has historically been driven by an expanding workforce. However, now, as ill-fated policy choices rear their teeth, the country's working-age population is shrinking. Growth, which is already slowing, is likely to decelerate further. But, don't expect that to have an equal impact on energy demand.
At one point China was concerned about having too many mouths to feed. The country's leaders put a policy in place that forced families to have just a single child. Replacement rate is 2.1 children per family, so China purposefully set a course for shrinking the size of its population.
As the country modernized there were plenty of people to work. But, a generation later, the one-child policy is having an impact—for the second year running, the country's working-age population has declined. It's lost nearly six million "workers" between the two years. That trend won't change any time soon with the International Monetary Fund projecting labor shortages by 2030, or sooner. Productivity enhancements can help soften the blow, but there's no easy fix and China's growth looks set to decelerate.
Moving forward, even if growth continues to slow, energy demand should stay strong. Indeed, people don't stop using energy when they get too old to work. And, productivity improvements will keep energy demand from industry high, regardless of the size of the workforce. So, even with a shrinking workforce, energy will remain a growth industry in China.
For example, the Energy Information Administration (EIA) projects oil and natural gas consumption to double by 2040 from 2010 levels. And China is expected to account for 70% of the coal demand growth that the EIA is projecting in Asia.
One of the most direct coal plays is Chinese coal company Yanzhou Coal Mining (NYSE:YZC). It's well situated near key infrastructure and has been increasing production. Although weak coal prices have taken a toll on revenues and profits, the company is set to keep increasing production based upon strong energy demand. China's efforts to close smaller mines will help it, too.
That said, if owning a Chinese company like Yanzhou seems a bit too risky for you, consider Peabody Energy (NYSE:BTU). Australia, which largely serves Asia, makes up about half of this globally diversified coal miner's business. And the company just formed a 50/50 partnership with China's Shenhua Group to provide China with coal.
Peabody is expecting around 200 gigawatts of coal-fired power plants to come on line in China over the next four or five years. So it's lining itself up to participate in that demand growth. And, of course, Yanzhou will be there to benefit, too.
Uranium miner Cameco (NYSE:CCJ) is another energy player to watch. Like other natural resources, uranium is working through a supply/demand imbalance that's depressed prices. However, the company expects China to have 56 new reactors online by 2022, with 30 of those units already under construction. That's going to lead to a big increase in uranium demand since there are only 17 reactors running today.
Cameco isn't sitting around waiting, either. It's preparing today by buying new assets and increasing production—much like Yanzhou on the coal side. As the largest pure-play uranium miner, Cameco will be a big beneficiary of China's increasing demand for nuclear fuel.
Oil and gas
Another big trend in China is the increasing number of cars. More cars means more demand for oil. Big Chinese oil companies CNOOC (NYSE:CEO), PetroChina (NYSE:PTR), and China Petroleum & Chemical (NYSE:SNP) are all set to benefit. All three are expanding around the world, buying up assets to ensure they have the capacity to meet China's growing demand.
On that front, CNOOC's big deal was its early 2013 purchase of Nexen for about $15 billion. That acquisition increased the Chinese oil giant's access to oil assets around the world, including a stake in Canada's Oil Sands. CNOOC is clearly positioning itself to become an increasingly important international oil major.
Old or not
Age isn't so important when it comes to energy use. As long as China keeps moving up the economic ladder, energy demand will increase regardless of how many workers there are. Look for companies all along the spectrum to benefit, including big suppliers like Peabody Energy, CNOOC, and Cameco.
Speaking of Chinese automotive demand...