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TheStreet Open House

Smoking Out Smog-Fighting Stocks in China

BEIJING (TheStreet) -- Paralleling China's rising anxiety over urban smog and undrinkable water, investors have embraced stocks poised to benefit from what's billed as an all-out government effort to clean up the country's environmental mess.

Chinese makers of smokestack scrubbers, wastewater filtering systems, trash-burning furnaces and electric vehicles have been pegged by stock analysts as "buys" in recent weeks, following recent government announcements of pollution-fighting projects.

Other favorites on the Shanghai and Shenzhen stock exchanges include energy management and research firms, as well as the builders, operators and suppliers of coal-to-gas energy plants.

Chinese stocks in the environmental protection category outperformed the country's market in the first two weeks of February, collectively gaining 4% in value, a Citic Securities report said Monday. "Market enthusiasm for the environmental protection sector is rising," it said.

Wind and solar power companies, however, have received little attention from stock analysts lately. Neither have analysts reacted to the possible earnings impact on companies such as cement and steel makers that have been ordered to reduce emissions.

China's central, provincial and city governments are expected to shoulder much of the cost, either through direct spending or corporate tax breaks, to clean up the country's air, soil and water over the next decade. Governments also bear financial responsibility as majority stakeholders in the big, state-run companies that will have to spend more to cut pollution.

A central government plan to funnel 10 billion yuan into regional, air pollution-fighting projects was unveiled Feb. 12 at a meeting of China's cabinet, the State Council. The meeting's chairman, Premier Li Keqiang, pledged tax incentives and subsidies to companies that cut emissions.

Local governments have promised to do their part. Auto-use restrictions have been imposed in Beijing, Guangzhou and other cities, for example. And Shanghai plans to force 70,000 older vehicles off the road this year.

Beijing Mayor Wang Anshun announced an "all-out effort" to battle air pollution by restricting coal-powered heating plants. And the city of Shijiazhuang, where daily smog levels are typically labeled "hazardous," said steel and chemical manufacturers will have to slash coal emissions or move their plants elsewhere.

Meanwhile, the central government's environment ministry in January ordered cement companies, livestock and poultry farmers, battery manufacturers, makers of leather goods and zinc processors to drastically curtail the wastes discharged by their facilities.

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