China’s new energy policy: The stocks to watch

PUBLISHED : Tuesday, 08 March, 2016, 3:50pm
UPDATED : Tuesday, 08 March, 2016, 3:52pm

The Chinese government’s pledge to boost investment into major development projects in the energy and power sectors will benefit industry players, say analysts.

China International Capital Corporation, the country’s top investment bank, foresees the energy sector will benefit from a government report at the National People’s Congress (NPC) that proposes to upgrade power supply in rural areas.

“More than 700 billion yuan (HK$833.95 billion) of investment is planned [for rural power network renovation], higher than the combined levels of 1998 and 2010,” a CICC report says.

“The average annual investment in rural power networks over the 13th Five Year Plan shall substantially exceed that of the 12th Five Year Plan, with investment accelerating significantly and maintaining rapid growth.”

READ MORE: Power shift: China to boost clean energy investment

China still struggles with a huge gap between urban and rural power supply, with many villages lacking stable access to water and electricity. The government aims to connect rural pumping wells and power grids to stable energy supplies in the next two years, with the projects to be handled by state-owned China Southern Power Grid and State Grid, the CICC report added.

Electrical equipment manufacturers would benefit from the multibillion dollar investments, with companies such as Shanghai Zhixin Electric and Beijing Creative Distribution Automation deserving attention.

A shift in usage of energy sources would also benefit clean-energy companies, according to a report by Bank of China International.

Continued investment in new energy such as hydropower, nuclear power, and ultrahigh-voltage power transmissions will continue to play a crucial role for the country in maintaining a stable economic growth, said BOCI analysts Cheng Manjiang and Ye Bingnan.

“We expect infrastructure investments to maintain relatively steady-to-fast growth at 17-20% in 2016,” they wrote.

China, the world’s largest carbon emitter, has set key targets to reduce greenhouse gas emissions by promoting more energy-efficient coal burning and boosting clean-energy sources.

READ MORE: Coal-shunning China explores solar power, alternative energy solutions to beat pollution

Premier Li Keqiang has pointed out at the NPC that at least 60 per cent of China’s economic growth would be fueled by innovation and improvements in technology and science by 2020, as part of the national strategy of going green.

Among various clean-energy sources, CICC analysts say they believe nuclear power plants will benefit from large-scale investments as it is seen as a “significant pillar” for exports of high-end manufactured equipment.

In its 13th Five Year Plan, along with 24 nuclear power plants already under construction, China will seek to approve six nuclear power plants each year to meet capacity targets, with an additional 400 billion yuan (HK$477.40 billion) in investment.

Apart from building more nuclear plants, BOCI analysts say China would implement policies to encourage people to shift to clean fuel.

The authorities are seeking to remove 3.8 million old and high-emitting vehicles off the roads and lower the levels of PM2.5, a gauge of pollution.

China’s drive to clean up its air also means that it will push for alternative-fuel vehicles such as those powered by electricity and solar energy.

READ MORE: Ultra-high voltage equipment makers set to benefit from China’s clean air push

CICC analysts Chen Long, Luo Wen and Li Min said they believe this year will see an “explosive initial development” in charging facilities, ushering in “a golden development era”. They expect to see investment in charging facilities to soar more than 400 per cent to at least 10 billion yuan (HK$12 billion) to sustain the burgeoning interest in the domestic electric vehicle market.

More than 100,000 units of electric vehicles were sold in the last year alone, 10.6 times the amount sold in 2014, according to official figures from the China Association of Automobile Manufacturers.

CICC analysts recommend investors look into companies such as Hangzhou Zhongheng Electric and Shenzhen Kstar Science and Technology in this sector.