I'm watching where the Chinese government plans to spend new money in a big way.
A short time ago, I and my editor at the China Stock Digest, Jim Trippon, posted a story about the upcoming $1.5 trillion spending program China is now planning. As we noted, the investment is huge. It amounts to 5 percent of China's GDP.
Up until now, we knew only a few outlines of this massive spending initiative. We knew that Beijing was planning to shift its growth targets from heavy industry to high technology. The State Council (China's cabinet) set its priorities for the next five years in October:
New-generation information technology
High-end equipment manufacturing
Energy-saving and environmentally-friendly technologies.
But this list of priorities was lacking in specifics.
Now we know where $601 billion of this spending will be targeted.
Investing in the Smart Grid
According to the China Securities Journal, at least $601 billion will be invested in smart grid systems over the next decade.
The details of spending on China's all new pillar industries were expected to remain under wraps until the end of the month. But a leak from Bloomberg forced the Chinese to go public in advance on the planned smart grid spending.
Smart grids are all the rage among North American utilities. Because of the enormous cost of building new power plants and the high cost of energy, making an electricity grid smarter and more efficient can save billions.
Beijing has an especially strong motive to find new levels of efficiency. China has zoomed past the United States to become the world's largest energy consumer. The nation's immense coal reserves are nearing maximum production as energy use continues to soar. Chinese oil companies are scouring the world for new sources of supply.
It all adds up to future shortages of energy. And, a shortage of resources means dramatic price increases. To its credit, China sees the problem coming and is taking action.
For those who haven't heard about smart grid technology, it's all about creating energy efficiency. Smart grids incorporate wind and solar energy, energy storage systems, energy transmission monitoring, intelligent substations, and smart meters at the home. Ultra-high voltage transmission systems, as one example, can save billions of watts and millions of dollars by reducing losses as electricity travels hundreds of miles over high tension lines.
Although green energy sources will get most of the headlines as the world wakes up to China's smart grid spending, the real money is in modernized hardware and automated control and storage systems. Much of the equipment and technology for smart grids has been developed in the United States and Europe.
A number of high profile western companies have already established a smart grid presence in China. They could be among the big beneficiaries of China's massive new program.
Among them are:
IBM (NYSE:IBM) says it expects China-based revenues from its energy and utilities division to grow by $400 million from now until 2014, thanks largely to China's smart grid
General Electric (NYSE:GE) is partnering with the City of Yangzhou to test and deploy smart grid technologies
Siemens (SI) is conducting feasibility studies to launch smart grid pilot projects
China's government-owned State Grid Company will certainly do its best to become self-reliant or switch business to Chinese suppliers of smart grid technologies. It will be interesting to watch which companies will be the first to profit from China's smart initiative (and which will be sidelined as China creates its own systems).
Chinese solar, wind power and grid infrastructure plays will soon be on our holiday shopping list.
It's also worth noting that the Shanghai Daily says the smart grid program is a part of China's plan to promote an awkwardly-named plan called the "Internet of Things." This plan reportedly includes "applications such as remote-control panels, clothes that talk to washing machines, virtual health care and vehicle-to-vehicle communications." The Internet of Things also includes "smart transportation systems, smart logistics, smart homes and health care systems."
Details will be formally unveiled as originally planned around December 30.
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Global Profits Alert (GPA) is published by Trippon Financial Research, Inc. a financial media organization with offices in the United States, Hong Kong and Mainland China. GPA is written by Jim Trippon in conjunction with George Wolff, Sunny Wang, Todd Shriber, Kelley Damiani and J. Daryl Thompson.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.