Bus Makers and China's Eco-Transit Plan

TAIPEI (TheStreet) -- Much of China saw air pollution shoot up so severely on the second weekend of January that authorities warned people in the capital, Beijing, to stay inside and called off construction projects that are ever kicking dust skyward.

The density of air particles smaller than 2.5 microns had exceeded 900 micrograms per cubic meter in Beijing, the highest in at least a year, official media said. The ideal level is below 25 microns per cubic meter.

Purely by chance, the Asian Development Bank also announced this month that it would help China lease 5,000 eco-friendly public buses by 2018. The buses for urban mass transit will "help avoid" 1.31 million tons of greenhouse gas emissions per year and give a lift to millions of low-income commuters, the lender said.

The clean-burning bus comes just in time as pollution from construction, industry and traffic threaten the respiratory health in a country already rife with everyday viruses.

Buses would supplement existing eco-friendly fleets in China that run on compressed natural gas or liquefied natural gas. Electric and hybrid buses may also hit the roads, according to the 2018 plan.

China will benefit from $275 million set aside by the Bank for five financial leasing companies to hire the buses, says the Manila-based regional lender that normally focuses on poverty relief projects.

The country has lagged in green mass transit due to a "funding bottleneck in financial leasing companies and bus operators," Asian Development Bank private sector Director General Philip Erquiaga says in a statement. So the lender, with 67 members, will help to establish long-term finance and co-financing to fill the gap.

China should breathe easier as it's generally keen to reduce pollution and dependence on fossil fuels by pushing drivers to buy cleaner vehicles. The government has set a target of half a million electric or hybrid vehicles on the road by 2015 and five million in 2020. It's not even close yet to the first goal.

An Asian Development Bank publicist would not name any specific bus providers for the China program, but it's clear who some of the industry giants are, in case bids are opened to anyone from anywhere.

One major name with a resume in China is Volvo ( VOLVY). It makes hybrid buses and in 2009 agreed to sell 1,500 vehicles to the city of Shanghai ahead of its World Expo a year later. That deal earned Volvo about $200 million.

A possible rival would be Fiat ( FIATY), which makes natural gas-powered buses and has worked with a Chinese partner since 2001 on vehicles for the local market. Its Irisbus Citelis CNG model vehicles are gaining steam in world cities, though company share prices could use a fuel injection after falling to almost zero last year.

Hyundai Motor ( HYMLF) of South Korea also rolled out its first hybrid compressed natural gas buses in 2011 with plans to mass produce them from 2012. The maker of hybrids, electric vehicles and fuel-cell electric vehicles designed the "Blue City" model buses with five rather than seven fuel tanks with no loss in the total fuelling capacity, according to the Green Car Congress Web site.

But China, being on push now to promote homegrown businesses, might turn to its own kind for the new bus fleets. A prime candidate would be Beijing-based Beiqi Foton Motor (600166.SS), which already makes natural gas-powered buses for domestic use as well as sale to other parts of Asia.

Foton says its brand value in 2010 was 38.872 billion yuan ($6.25 billion) and that in the same year it sold more than 680,000 units of all types, not a small number. Company share prices reached a historic high in 2010 but later sank and then traded nearly flat through 2012.

The firm operates joint China ventures with Cummins ( CMI) and Daimler ( DDAIF), although Foton's Web site links neither with the production of green buses.

But if going local, it's hard to beat BYD (1211.HK), at least on paper. The Shenzhen-based automaker says on its Web site that it has developed an all-electric bus that can go for 155 miles in city traffic between charges. It allows fleet booking as well as direct purchases of buses, which have been shipped to Europe already.

BYD share prices have slid hard since 2010 but began picking up steadily in October.

The Asian Development Bank did not specify how it would choose lessors of green buses, simply calling the process is part of its first non-sovereign loan program for sustainable transport in China. The program is part of a $175 billion commitment by cross-border development bank, including Asia's, for the decade ending in 2022.

Several leasing companies have expressed "significant interest" in the China project, the Bank said in a statement without giving details. The Bank is in discussion with a number of financial leasing companies and will pick five, all from China, a publicist for the lender said. It's not clear when these decisions will be made.

If BYD, Hyundai, Foton, Iveco or Volvo get a green deal in China and company fundamentals show no other signs of a coming crash, the contract should drive share prices to the black.

At the time of publication the author had no position in any of the stocks mentioned.

Ralph Jennings is on LinkedIn.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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