How can we profit from growth in the Chinese economy? In my Foolish opinion, one answer involves investing in "red-chip" companies -- PetroChina (NYSE:PTR), China Mobile (NYSE:CHL), and China Life (NYSE:LFC) spring to mind -- which hold leadership positions in their target markets, have strong growth prospects, are attractively valued, and are companies in which the Chinese state retains a large stake. I'm assuming that the government is less likely to bite the proverbial hand that feeds it.

Huaneng Power International (NYSE:HNP), the largest independent power producer in China, is another such company worth considering. In simple terms, Huaneng stands to benefit from China's insatiable demand for power to drive its economic expansion, it'ss well-positioned to grow both organically and through acquisitions in China's fragmented power market, and it's attractively valued.

Check the stats
The Chinese economy, already the world's fourth largest with a reported 2005 GDP of $2.22 trillion, is continuing to grow by leaps and bounds. According to the Chinese Academy of Social Sciences, China's economy will expand at a rate of 10.5% this year before slowing to a more "modest" clip of 10.1% in 2007. It's expected to overtake the German economy in size by 2009.

While foreign direct investment (FDI) and fixed-asset investment by the Chinese government have been major contributors to the country's incredible economic expansion, Chinese companies are increasingly driving growth in their own right. According to China's National Bureau of Statistics, industrial companies (both private and state-owned) reported an average 28% increase in profits in the first half of 2006, an acceleration in growth from the 23% gain reported in 2005.

As new factories are built and new workers hired, China's middle class is growing as well -- a middle class that McKinsey & Company expects to reach 520 million by 2025, with a purchasing power exceeding $2.5 trillion.

Hmmm . rapid industrial expansion, booming corporate profitability, and a burgeoning middle class. What more could an eager investor ask for?

Huaneng Power International
Huaneng Power is the largest publicly traded power producer in China. The company owns or operates 32 power plants with a current installed generating capacity (including recent acquisitions) of 25,267 megawatts (MW), has an additional 7,000 MW of generating capacity under construction, and holds just more than 6% of China's highly fragmented electricity market.

How's that for a thumbnail sketch?

Huaneng stands to reap the rewards of the torrid pace of China's economic expansion -- the nation's economy is expected to grow at an average annual rate of 7% over the next two decades -- since power demand usually increases at a slightly faster rate than overall economic growth. In 2005 alone, when China's GDP growth came in at 9.9%, electricity consumption rose by 13.5%. There's no reason to believe that this trend won't continue as companies expand and consumers buy more energy-hungry PCs, microwaves, and other appliances.

In addition to profiting from the inherent growth of the Chinese economy, Huaneng is well-positioned to grow both organically and through acquisitions in China's fragmented power market. On the organic front, the company has roughly 7,000 MW worth of generating plants under construction. When completed, they will increase the company's generating capacity by roughly 27%. In terms of acquisitions, Huaneng stands to benefit from its unique relationship with its state-owned parents, Huaneng International Power Development Corp. (HIPDC) and Huaneng Group. In simple terms, this relationship gives the company preferential rights to acquisitions of state-owned assets, while helping it cut through bureaucratic red tape when it comes to new plant construction. While hard to quantify, this relationship may give Huaneng some type of competitive advantage.

As if the company's growth prospects and competitive position in the world's fastest-growing economy weren't enough, Huaneng also happens to carry an attractive valuation. At a recent price of $34.50, shares of the company trade at roughly 13 times forward estimates, just a slight premium to the company's earnings growth rate, and offer a yield of roughly 4%. Considering that most electric utilities have no discernable growth at all and trade at multiples closer to 17 times earnings, I'd consider Huaneng a bargain.

All in all, I think shares of Huaneng Power could add a little juice to any investor's portfolio and might be worth a closer look.

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Fool contributor Will Frankenhoff is enjoying his time writing for the Fool more than playing golf, reading The Financial Times, or rooting for the Jints. He welcomes your feedback. He does not own shares in any of the companies mentioned above. The Fool has a disclosure policy.