Behind China's Roaring Solar Industry
Wednesday, Bloomberg reported that Chinese solar stocks had soared based on market expectations that demand in China for alternative energy will increase given the Chinese government's increasing solar capacity targets. Earlier this week, China's National Energy Administration announced its intention to add 10 gigawatts of solar power capacity in 2013, more than twice its current level. According to Barron's and others, China has already begun implementing its ambitious plan to increase installations. It previously approved the Golden Sun initiative for the first half of this year and committed prodigious amounts of government cash to the sector.
China has also begun offering subsidies for rooftop solar projects. These aren't controversial production-side subsidies (of the kind that have been challenged as contravening international trade agreements) but rather incentivizing domestic subsidies intended to help Chinese citizens and organizations to purchase solar systems at an affordable price. This week, the share price of Trina Solar Ltd. the nation's third-biggest maker of solar panels, jumped to the highest level in five months even as that of LDK Solar Co. rallied 7.7 percent.
These growth trends in China represent tremendous new opportunities for companies capable of developing innovative solutions to some of the most formidable problems of the new world.
Although some commentators may see this uptick in China's solar investments (and equity values) as an intriguing short term phenomenon, we at The Boston Consulting Group believe it reflects a public commitment on the part of China's government to embrace clean energy sources and to seek economic growth that is less energy dependent, as well as these profound long-term trends:
- A booming Chinese population of ever more confident middle class consumers. We calculate that between 2010 and 2020, the people of China and India will have consumed goods and services worth a total of $64 trillion. Chinese consumers will spend $41.5 trillion over this period, with annual expenditures rising from $2.0 trillion to $6.2 trillion, an increase of 203 percent. Many of these newly affluent consumers are purchasing homes for the first time. In 1990, there were 227 million houses in China — by 2010, there were 371 million.
- Increased urbanization, construction, and vertical living, driving tremendous new demand for sources of safe and renewable energy. More than 15 percent of the country's investment goes into real estate, and around 12 percent of GDP comes from property-related industries. In 2010, for the first time, China overtook the United States as the world's largest center for construction, investing more than $1 trillion in building projects. Over half of this money was spent on new housing.
- Heavy government investments in the nation's infrastructure. China is projected to spend $113 billion per year on trains and railway infrastructure. The new high-speed line connecting Shanghai to Hangzhou, which opened in late October 2010, cost $4 billion and took just two years to build — an astonishingly rapid rate, given the glacial pace at which large infrastructure projects proceed in the West. Even larger investments are pouring into housing, waterworks, mass transit systems, power plants, natural gas distribution networks, and electric grids. We calculate that China needs to make an investment of $17.3 trillion between now and 2030: around 40 percent on housing, 27 percent on water infrastructure, 16 percent on roads and railways, 13 percent on electricity networks, and the rest on telecommunications, ports, and airports.
The tremendous boom in China's consuming classes, the phenomenal growth of its cities, the explosion in its housing sector and overall infrastructure, all add up to significant new opportunities for all kinds of companies. Likely winners could include house builders and their suppliers, the specialist furnishings businesses, the makers of household appliances, as well as suppliers of commodities such as corn, fertilizer, copper, cotton, steel, cement, oil, coal, gas, electricity, and providers of transportation equipment of all kinds.
But even more, these growth trends in China represent tremendous new opportunities for companies capable of developing innovative solutions to some of the most formidable problems of the new world, especially those capable of creating sustainable, nonpolluting solutions (of the kind, for instance, represented by solar panels).
We believe that billions of dollars, then, will be made not just in delivering clean safe energy to China's exploding urban centers, but also in providing China with higher-quality, safer, sustainable food. Billions of dollars will be made developing and marketing completely recyclable packaging, and end-to-end distribution systems that require 80 percent less energy and have total system loss ratios of 50 percent of the current model. Billions of dollars will be made in the water market — providing systems that conserve water and deliver clean potable water to a nation where droughts and polluted drinking water are still all too common. Billions of dollars will be made, too, providing health care to the 200 million plus over 65 year old Chinese population of 2020.
The opportunities are there — what is your firm doing about them?
Michael J. Silverstein is Senior Partner and Fellow of The Boston Consulting Group (BCG). His most recent book is The $10 Trillion Prize: Captivating the Newly Affluent in China and India. Follow him on Twitter at @MJSilverstein
Visit www.bloomberg.com/sustainability for the latest from Bloomberg News about energy, natural resources and global business.