A wacky but wise Wall Street wag used to tell his clients, \u201cAfter living standards in the third world improve, people will want to live longer.\u201d\u00a0 That is bullish for healthcare stocks but also, less obviously, for a broad range of industrial companies.\u00a0 With the help of air quality readings transmitted from the American Embassy in Beijing, it has become apparent to China\u2019s citizens and politicians that the city\u2019s air quality is off-the-charts bad.<\/p>\n
How bad is it?\u00a0 Bad enough that airlines are cancelling flights into Beijing.\u00a0 Bad enough that, according to The Wall Street Journal<\/b>, \u201clow visibility conditions in the eastern province of Zhejiang prevented locals from noticing that a furniture factory had been on fire for four hours.\u201d\u00a0 Bad enough that sales of air purifiers (which can cost a few thousand dollars) tripled in a couple of months.\u00a0 And bad enough that China\u2019s outgoing Premier Wen Jiabao proclaimed \u201cWe should take certain and effective measures to accelerate industrial restructuring, and push forward energy conservation and emissions reductions.\u201d\u00a0 China\u2019s incoming premier has echoed those sentiments.<\/p>\n
In China, what the Premier wants, the Premier gets \u2013 fast.\u00a0 Local politicians will start to be graded on the level of pollution in their city.\u00a0 So China will invest tens of billions of dollars rebuilding and upgrading its vast industrial infrastructure to reduce energy consumption, cut emissions, closely monitor pollution, etc. etc.\u00a0There will probably be a shift from coal to natural gas and nuclear power. Vehicle emission standards will rise.\u00a0 Dirty old power plants and factories will be shut down sooner than was previously planned.\u00a0 Aside from letting its citizens lead longer and healthier lives, there is another reason why this investment makes sense for China.\u00a0 Its economy is driven by capital investment, but building more steel and aluminum mills would simply create excess capacity in a sluggish global economy.\u00a0 Pollution reduction is a politically popular investment that will sustain economic growth without creating gluts.<\/p>\n
All of which is very positive for industrial companies in the U.S. and Europe with advanced technology that China will need to upgrade its infrastructure. \u00a0It is a bit difficult to find \u201cleveraged plays\u201d on the theme because most large industrial companies are diversified across a broad array of businesses and do not have a large share of revenue in China.\u00a0 Nevertheless this theme is positive in one way or another for most of the large diversified industrial companies, and there are certain firms with significant exposure to China and other emerging markets.\u00a0 Instrumentation companies also benefit.\u00a0 On the Q4\u00a0earnings conference call a Thermo Fisher executive said “in applied markets, however, we’re still seeing pockets of strength, including high demand for our air quality and particulate monitors in China, as an example.”<\/p>\n
Another implication has to do with \u201cglobal warming.\u201d\u00a0 As we have noted before, China and other emerging nations such as India and Indonesia, not the U.S.<\/b>, are adding most of the new CO2 to earth’s\u00a0atmosphere.\u00a0 They are not about to make huge investments to cut CO2 emissions to \u201caddress climate change\u201d\u00a0 that might occur fifty years from now when they face the much more urgent problem of reducing high levels of particulates that endanger the health of their citizens right now.\u00a0 Al Gore and Tom Friedman can dream on about a global push to cut CO2 emissions.\u00a0 It ain\u2019t going to happen.<\/p>\n
Copyright 2013 Thomas Doerflinger.\u00a0 All Rights Reserved.<\/p>\n","protected":false},"excerpt":{"rendered":"
A wacky but wise Wall Street wag used to tell his clients, \u201cAfter living standards in the third world improve, people will want to live longer.\u201d\u00a0 That is bullish for healthcare stocks but also, less obviously, for a broad range … Continue reading