Cleaner, Greener China

Author: USGI
Date Posted: August 6, 2013 Read time: 3 min

Did you know that energy use in China is estimated to be double that of the United States by 2040? Assuming world GDP rises 3.6 percent per year, energy use around the globe will expand 56 percent between 2010 and 2040, according to the U.S. Energy Information Administration. Half of this increase is attributed to China and India.

You can see below that by 2040, China’s energy consumption may grow to 220 quadrillion British thermal units, while U.S. energy consumption remains nearly flat, growing to an estimated 107 quadrillion British thermal units.

click to enlarge

China’s rapidly increasing middle class and more residents moving to urban areas are two driving factors of this skyrocketing energy consumption. According to McKinsey & Company, “by 2020, an additional 300 million Chinese will become urban residents, who consume as much as four times more energy and two-and-a-half times more water per capita than rural Chinese do.”

To address the environmental issues that come with this tremendous growth, China’s leaders have been focusing on moving toward a cleaner, greener lifestyle. For example, China is trying to double the share of natural gas in its energy mix to 10 percent by 2020 from less than 5 percent now, according to The Wall Street Journal.

See how much vehicle emissions comprise of Beijing’s total air pollution in this recent post.

Our portfolio manager of the China Region Fund (USCOX), Michael Ding, witnessed this boom in natural gas consumption on his recent trip to China. Michael saw a significant number of vehicles, mainly taxis and long-haul trucks, fueled by liquefied natural gas (LNG).

Additionally, he saw several tanker trucks used to transport LNG on his travels through Shanxi Province. Many of these trucks were owned by Enric, which holds more than 80 percent of the market share of LNG tanks.

Michael snapped this photo during his visit to China, showing an LNG tanker truck with the Enric logo printed on the side.According to Michael, Enric stock is currently facing short-term headwinds. This is due to misunderstanding of the natural gas price hike at wellheads announced by the National Development and Reform Commission in July, which the market fears may negatively affect LNG consumption. Michael believes this price increase may actually spur natural gas development and production to meet growing demand, therefore, increasing consumption.

Because we believe that policy is a precursor to change, the government’s focus on clean energy use should propel companies focused on this “green” theme, such as Enric.

See other potential opportunities for the China Region Fund.

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by clicking here or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Holdings in the China Region Fund as a percentage of net assets as of 6/30/2013: CIMC Enric Holdings Ltd 1.31%.