Chinese Hydropower: Investing Idea Or Industrial Complex?

James Dennin, Kapitall: China loves dams, perhaps a bit too much. We examined Chinese hydropower and the Hydro-Industrial Complex.

Say what you will about China's record on governance, human rights, or the environment. You cannot fault them for not trying to think ahead. 

Maybe it's just that my own country seems about as forward-thinking as a drunken frat boy – I'm already anticipating the next unproductive government battle over Obamacare in about two months - but some of the ways in which China's officials plan ahead is astounding to me. For instance, take what many critics refer to as China's Hydro-Industrial Complex. 

Read more on China from Kapitall: Chinese Housing Bubble: Will These Stocks Survive if it Bursts

The only time that China's legislature has ever squared off against party leadership was in 1993, over the Three Gorges Project. The most powerful dam in the world makes the our own Hoover Dam look like a hamster wheel – it generates ten times as much power. And the Three Gorges dam will soon be surpassed by another even larger Chinese hydroelectric project, whose plans were announced this May.

China is obsessed with hydropower, ironically, because they are concerned about the environmental impact of all that coal and oil they're burning. 

Now, it shouldn't be too hard to see why building too many dams also isn't good for the environment. When you dam up rivers, you disrupt the ecosystem, displace communities of residents, and flood huge swaths of land with sometimes polluted water.

However, electricity generated from hydropower release far fewer emissions into the air – and China actually leads the world in renewable energy investment. Much of that money goes into hydropower.

But the fervor for hydropower can sometimes goes beyond reason. For instance, the situation received renewed attention when The Economist investigated plans for a new dam just upriver of the Three Gorges which would utterly eradicate one of China's most fertile regions for farmers.

People need electricity and heat – but they also need food. The new dam, which wouldn't even generate that much electricity in the first place, drew attention to the fact that China's lust for more hydropower sometimes clashes against sound logic. Some of China's leaders are trying to push the country in a different direction, energy-wise. But it remains to be seen whether the trend will take hold. 

Right now China's long-term plan is for about 15% of its energy to come from renewable sources by 2020. The way forward seems to be hydropower, and China is building more dams, faster than anyone else.

This so-called Hydro-Industrial Complex also has some advocates in high places. Hu Jintao, the former prime minister, was the second of China's top officials with a background in water engineering. 

Coincidence? If you believe that, I have a bridge, er, dam to sell you. 

Ok maybe I can't haggle over infrastructure as well as the Chinese, but I can present you with some investing ideas. Below is a list of four Chinese energy companies traded on US exchanges. Do they present an opportunity to profit from Chinese hydropower?

Click on the interactive chart to view Chinese energy companies' quarterly sales over time.

Will Chinese hydropower continue into the future, or will it be supplanted by other power sources? Use the interactive list below to begin your own analysis. 

1. China Hydroelectric Corporation ( CHC): Engages in the acquisition, ownership, development, construction, operation, and financing of hydroelectric power projects in the People's Republic of China. Market cap at $135.23M, most recent closing price at $2.54.


2. Huaneng Power International Inc. ( HNP): Engages in the generation and sale of electric power to the regional or provincial grid companies in the People's Republic of China. Market cap at $14.98B, most recent closing price at $42.20.


3. China Ming Yang Wind Power Group Limited ( MY): Designs, manufactures, sells, and services megawatt-class wind turbines in China. Market cap at $418.47M, most recent closing price at $3.39.


4. PetroChina Co. Ltd. ( PTR): Produces and distributes oil and gas in the People's Republic of China. Market cap at $215.95B, most recent closing price at $117.10.


( List compiled by James Dennin. Quarterly Sales sourced from Zacks Investment Research. All other data sourced from Finviz.)


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