Chris Devonshire-Ellis: What Next With China Investment?

OK, so I've been beating up on China a bit recently, however as I pointed out, there are political hierarchical issues to solve, an economy to recalibrate and enormous amounts of bad debt sloshing around. That's not that great a scenario, and as for the theory China escaped the global recession – I may point out perhaps for China alone, it may still yet to prove rather more a case of postponement. But at the end of the day, and especially for my business, we're committed to China, and obviously see great things on the horizon. It's just that a slowdown is occurring, India is growing, and the dynamics are changing. Short term, this is the deal:

* Will China's economic growth slowdown? Yes.
* Will it lose labor intensive industrial investment to other regional markets? Yes.
* Has it gotten more expensive? Yes.
* Is the economy out of alignment? Yes.

The bad news list could in fact go on and on, but that is not the subject of this article. Rather, let's look at the positives and for clues as to where China is changing for the better and where those opportunities are. To paraphrase the rejuvenated Gordon Gekko "Change is Good." And that's what China is going through now. Moving up the value chain is never an easy thing to do, and China of course is a behemoth of the global economy. While as I said, China will go through a short term period of decline, there are bright spots aplenty. Just this past week, apparently missed by much of the media, three Chinese wind and solar power companies successfully listed on the New York and Hong Kong stock exchanges after raising nearly US$1.5 billion. This is the biggest push by Chinese alternative energy companies into the equity market indicating China's determination to use stocks and bonds to bankroll a part of its massive investment program in the sector. Ming Yang Wind Power, a Guangzhou-based firm, has become the first Chinese wind energy company to obtain listing at the stock exchange in New York. It comes within days of two Chinese companies, Xinjiang Goldwind Science and Technology and Trony Solar Holdings, launching initial public offers at the Hong Kong stock exchange.

Goldwind in particular is interesting as the company managed to attract over-subscription by nearly 20 times after selling its shares in Hong Kong at a discount to the prevailing price at Shenzhen stock exchange, where it is also listed. China aims to become the world's largest market for wind power, overtaking the United States in this field by the end of this year. Beijing has vowed to ensure that 15 percent of new electricity generation over the next decade comes from alternative energy sources. The total investment planned for new power projects from all sources over one decade is US$700 billion. If that isn't a major statement of intent of China moving up the value chain, then I don't know what is.

It's not just alternative energy either. While the United States and Europe have wrapped up innovation in genetic technologies and bio-engineering, China has been moving ahead, and the new technologies will come from Chinese inventions, patents, and expertise. A politically awkward subject in the West due to concerns over "playing God," mankind has in fact been involved with GM for centuries. On a basic level, even the family dog is an example of an animal bred and counter bred to create a species totally dependent upon man. That's not how the animal evolved. Ethical issues aside, China (and to some extent India) is powering ahead in this field. International scientists involved in such research are in fact involved in a mini "brain drain" – China now offers better facilities in the field than the West does. Add to that the new determination to unravel the active ingredients in much Traditional Chinese Medicine (TCM), and it's easy to see that the GM and pharmaceutical industries globally will eventually shift to reliance on China derived knowledge and discoveries.

Space exploration is another field where the United States has for decades had the upper hand. Yet both Chinese and Indian scientists are both very much involved in space exploration, and the new technologies that come from investment in this field. The most accurate high altitude telescopes for identifying what's going on around planet earth are Indian technology. Both countries, and especially China are investing billions into their space programs, and again new technologies will result that will become game and life changers for us mere earthlings.

In terms of infrastructure, China's developments and engineering feats have now become legendary. Of particular note is the development of rail track over highly difficult terrain, and the lessons learned over the Tibet rail link are now being expanded across the Himalayas. That will also provide China with the potential later to provide massively upgraded rail links across Central Asia. The same may also be true of the provision of such technologies and engineering solutions to South America and Africa. Both suffer due to a lack of infrastructure, and to properly unlock the potential of Africa, a lot needs to be done. The continent has the largest number of inland countries globally, and interconnecting them and getting product onto the global markets through African Ports requires rail networks. Africa's rail system in 50 years will be not just impressive, lift an entire continent out of poverty and strife, and will be Chinese designed and built.

To read the rest of this story written by Chris Devonshire-Ellis, visit China-Briefing.com. You can also read Chris on his personal blog or see a list of other articles by Chris Devonshire Ellis.

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