Companies That Will Benefit From China’s Population Explosion

Sep 20, 2008
Author: China Editor

Environment is biggest concern as the number of Chinese living in cities explodes, development opportunities are vast  

By 2030, 1 billion consumers will live in China's cities. Chinese and global companies are well aware of the huge size and potential of this emerging urban market. China's urbanization is largely a local phenomenon. The scale of the urbanization phenomenon is startling. According to McKinsey Global Institute (MGI), they estimate that, between now and 2025, China's cities could pave 5 billion square meters of roads and build up to 170 new mass-transit systems (twice the number that all of Europe has today). By 2025, cities will construct 40 billion square meters of floor space in 5 million buildings, of which up to 50,000 will be skyscrapers—the equivalent of building up to two Chicago’s every year. The incremental growth alone in urban China's consumption between 2008 and 2025 will be equivalent to the creation of a new market the size of Germany's in 2007.  

Hungry for Energy

On current trends, energy demand is set to more than double, requiring massive expansion in capacity—as much as 1,200 gigawatts of extra capacity between now and 2025, MGI estimates. China's freight volumes—largely carried by road—will quadruple by 2025. Beijing has recently allowed the private sector to participate in infrastructure building (such as toll roads), mainly in joint ventures with local governments or state-owned enterprises.

 China's huge growth as a consumer market and its mega-sized infrastructure projects will doubtless offer rich rewards for business. Pinpointing opportunities geographically is one aspect of any entry or market expansion strategy. Keeping pace with the evolution of urban development strategies is another. Pollution and congestion are reaching critical proportions in many cities. This will provide openings for innovation in areas such as energy conservation, water recycling, and clean technology, not least in power generation and transportation.  

Companies to benefit  

China Industrial Waste Management, Inc., (CIWT: OTC BB), is engaged in the collection, treatment, disposal and recycling of industrial wastes principally in Dalian, China and surrounding areas in Liaoning Province. The Company provides waste disposal solutions to its more than 400 customers from facilities located in the Economic and Technology Development Zone, Dalian, PRC. Dalian Dongtai treats, disposes of and/or recycles a variety of industrial wastes through incineration, burial and/or water treatment, and recycles, processes and/or resells waste products for use as raw materials in the production of chemical and metallurgy products. In addition, Dalian Dongtai provides environmental protection services, technology consultation, pollution treatment services, and waste management design processing services.

The stock is currently trading at $3.45, holding a market cap of $46 million and trading at around 8X 2008 earnings. The Company's operating revenues for the three and six months ended June 30, 2008 were $3,590,859 and $6,721,139, compared with $2,464,263 and $4,147,235 for the three and six months ended June 30, 2007, respectively.

Net income for the three months ended June 30, 2008 increased by $682,800 or 99.4% to $1,369,792 from $696,992 for the three months ended June 30, 2007. Net income for the six months ended June 30, 2008 increased by $1,378,505 or 100.8% to $2,745,409 from $1,366,904 for the six months ended June 30, 2007. This increase is primarily attributable to the increase in both service fees and sales of recycled commodities (including sales of cupric sulfate), which is generated from widened customer base of the Company and improved gross profit margin in the first two quarters of 2008. 

Another company to benefit is RINO International (RINO: OTC BB). Rino develops, produces and installs pollution control and Cleantech equipment for customers operating in China’s Iron and Steel sector. RINO has three specific areas its products address which include water, air and production efficiency. As the government continues to implement more stringent emission and pollution standards, the Company’s products have seen a significant increase in demand, as its customized desulphurization equipment have been a primary driver during the previous 12 months.  For more information visit: www.hcinternational.net/RINO.asp

Financial Highlights for RINO: