Back in March 2009, Wall St. hit bottom and the world markets entered one year long rally. The fact is that the Shanghai stock market index bottomed earlier in December 2008 (see plot below). Back then, China started the biggest stimulus package and pushed its GDP growth over 10% in the following year. Most countries worldwide benefited from China's move.
History repeats itself often, we are seeing significant momentum shift in Chinese stock market again after almost 6 months of down drifting. The Shanghai index rose almost 9% from the recent bottom 2319 and recently traded at 2528. This trend shift is coupled with a new policy announced by Chinese government. The "125 plan" was announced 2 weeks ago, designed to develop its west provinces. Analysts believe this will lift the GDP to the next level. New policies will come out in August according to National Energy Committe with new RMB 5 trillion(e.g. US$746B) investment in the new energy industry. The investment will nurture new energy technologies and reduce carbon dioxide emissions by1.2 billion tons by 2020. Earlier this year China pledged to reduce carbon dioxide emissions by 40% by 2020. This strategic investment will achieve the goal faster than expected and China is aiming high in improving the environment. Chinese companies in this sector are gaining momentum as government contracts pile in. Rino International (RINO) is in a sweet spot as its production simply couldn't catch up demand and it needs to subcontract with third parties. SmartHeat (HEAT) has a unique technology to provide heat exchange system with the highest efficiency available in the market. The residential and commercial heat exchange market in China is huge as the old systems need to be upgraded in the next 2-3 years to comply with the new energy conservation policy.
The solar group will also benefit from the new policies. The market could easily exceed the sum of Europe and America combined by 2015 with the strategic RMB 5 trillion investment. US companies who has entered Chinese market include First Solar (FSLR) and Energy Conversion Devices (ENER). First Solar signed mega contract with Chinese government to build 1GW solar farm, and Energy Conversion Devices has set up Manufacturing Facility In Tianjin with over 100MW capacity in 2010.
Wind turbine group will get boost as well. Companies such as General Electric (GE) and Siemens (SI) have a good relationship with local governments and business has never be better in China.
Disclosure: long FSLR JASO RINO GE SI