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China’s Energy Challenge, Part III. What It Means For Doing Business In China.

Posted in China Business

By: Steve Dickinson

This is the final installment of a three part  series on China’s energy challenge.  This series arises from the White Paper on China Energy Policy 2012 that the PRC State Council put out last month, right before the 18th Party Congress. The White Paper sets out China’s current situation and then maps out China’s energy plans for the ten-year term of the new leadership to be installed at the party congress.

In Part One, I set out China’s energy scenario.  In Part Two, I analyzed the White Paper itself.  In this Part Three, I will discuss how China’s energy challenge is likely to impact foreign companies doing business with China or in China.

Foreign companies doing business in China or considering doing business in China should take account of the following:

1. China’s energy constraints almost certainly will mean that China’s economic growth will no longer be 8% or greater.  This means that business plans that rely on continued 8% or more growth in the Chinese economy are not likely to be reliable.

2. China’s energy constraints also mean that foreign investors in China should not simply assume that their full energy needs will be available to them in the future. Careful analysis of China’s energy supply should become a prerequisite for investment in China. In particular, China is seeking to develop energy resources in the Western Region. Availability of energy in those regions may be factor in inducing foreign investors to shift their interest from the coastal regions out to the West. It has long been China’s policy to encourage foreign investment into its Western regions.  Energy supply may finally be the factor that convinces foreign investors to consider regions in China that they previously considered too remote and undeveloped.

As always, where there are challenges there are opportunities. For decades, China has paid lip service to seeking investment and technology from foreign companies in the areas of energy conservation, pollution control and advanced energy technology. By this I mean that the Chinese government always talked about these issues, but when the time came to pay for anything, there were few results. It is perhaps possible that the government and businesses of China are finally willing to make investments in these areas. If this is true, it opens vast areas for foreign companies because the need in these areas is great and the level of Chinese technology and expertise in these areas is low.

What do you think?