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Time to Think Again

There's no denying that China has become a country of serious power. With that power, comes worldwide consequences for all of her actions.

Right now, no one is certain which way China is heading. Will China continue this massive growth and fuel the world economy? Or is there a bubble waiting to burst?

China bulls will say the country is still in the early stage of economic development. Combine this with their Government's power and riches, its growth could continue to blossom, sending many stocks higher.

Meanwhile, there are plenty of bears calling for a bubble as the government scrambles to curb property speculation while pumping billions of stimulus dollars into expansion.

There's a very fine line between whose right or wrong. Maybe there's a bubble...maybe not. But at the end of the day, China is not going anywhere. As a matter of fact, they're still growing - and fast.

China On Top

Back in June 2007, China surpassed the U.S. and became the world's top emitter of greenhouse gases. Three years later, China has topped the U.S. once again to become the world's largest consumer of energy. According to the International Energy Agency (NASDAQ:IEA), China overtook the U.S. in energy consumption sometime last year and was not expected to overtake the U.S. in energy consumption until at least 2015.

Those who continue to doubt the growth of China and its ability to continue should think again. In 2000, the US consumed twice as much energy as China. In less than 10 years, China has not only caught up, but has now surpassed the US in energy consumption.

Three years ago China was a net exporter of coal. This year it is expected they will become the world's largest coal importer, beating out Japan. China has also become Saudi Arabia's largest oil customer -- a position held for decades by the U.S.

But wait, they're not finished.

China is now the world's biggest investor in energy-efficient technology. Furthermore, they already have plans to spend close to $800 billion dollars on saving energy.

Let`s not forget that China is still on track to surpass Japan this year as the world's second largest economy after the U.S.

So while there continues to be talk of a major bubble in China, one thing is for certain...

China Needs Energy

According to IEA statistics, more than half of China's total energy in 2009 came from coal, a heavy polluter that accounts for less than a quarter of U.S. consumption.

Oil (the No. 1 energy source in the U.S., accounting for nearly half the total) made up less than a fifth of the Chinese energy total. But that is already changing as more Chinese trade their bicycles for cars.

Last year, China passed the U.S. as the biggest auto market by number of vehicles sold. Passenger vehicle sales in China jumped from 326,000 in 1995 to 8.7 million in 2009. That number is expected to soar to 13.5 million vehicles in 2015.

So while coal provided most of China's energy, oil will not be too far behind. That is why we have seen China buying up oil from all across the globe, including Canada's oil sands.

State-owned Chinese energy companies have forged multibillion-dollar deals in Central Asia, Africa and Latin America to secure access to oil and gas supplies.

And despite investments by China for cleaner energy, we are still many years away from adaptable technology that will make any major impact on oil demand.

That is why we expect strong long-term growth for oil and gas companies in the next few years. Remember, U.S. oil demand is still 20% below its all-time high due to this recent recession. When things pick up, demand will increase and there will be yet another shortage of oil supplies to fuel the boom.

Output will need to rise to keep up with demand from both China and the U.S. This will lead to yet another strong oil spike in the coming years.

Remember, there are now two world powers fighting for energy - and both of them use a lot of it.

Until next time,

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July 25, 2010


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