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?


Just came across another thoughtful set of predictions for China 2007, this one from Shu-Ching Jean Chen of Forbes Magazine:

  • “The Chinese Communist Party will continue to entrench its one-party rule. It is pursuing a Singapore-model, both on the mainland and in Hong Kong, of managing two seemingly contradictory tasks: ruthlessly stamping out political dissent while opening up its economy to global trade. Singapore, with a population of 3 million, has proved the success of combining a benign but autocratic political rein with the friendly face of a capitalist economy. Hong Kong, with 7 million people, could easily follow this prescription. Whether the same formula can work with the mainland’s diverse population of more than 1.3 billion will decide the future stability of China.”
  • “Chinese banks are still corrupt, ineptly bureaucratic and ill-managed, but can remain that way and still prosper.  The government controls all of the banks and will bail them out of any problems “short of a financial meltdown.”
  • China’s “economy is far more open to foreign investors than most believe.” There will always be bureaucratic foot-dragging and red tape to make foreign investing difficult, but the very top of “Chinese officialdom” — those “who make the final decisions” — still “lean toward using foreign investment to jump-start a cumbersome state-dominated economy. Foreign companies doing business in China will for the most part continue to thrive.
  • China’s second tier cities will reign in 2007.  “China’s provincial cities will be the pulse of the Chinese economy in 2007 more than the showcases of Shanghai and Beijing.”
  • Pollution will “darken the sky and blacken the earth.” “Green-minded investors will take notice and diversify their Asian holdings from China to other developing parts of the region.”

I agree with the first three, but disagree with the last two. Shanghai, in particular, will continue to boom in 2007, more so even than in 2006. SMEs [small and medium sized enterprises] and service businesses love Shanghai because it has so much infrastructure in place for them. And yes, we all know it is more expensive than the second tier cities, but what’s a couple thousand dollars a month to be able to participate in such dynamism? When our China lawyers assist service businesses on where to locate in China, the resultant list of potential locations nearly always includes Shanghai. Beijing will also do just fine in 2007 as China’s center for government, technology, and media and entertainment, all of which will continue to thrive. Oh, and there is this little thing called the 2008 Olympics that will play a major role in Beijing’s economy as well. Doing business in China will continue to get easier.

China’s environmental problems will lead to more investment, not less. It will lead to environmental investing and, unfortunately, to investing by those who wish to take advantage of China’s lax environmental enforcement.

Please check back in a year to see who was right.