Friday, March 11, 2011

China's Toxic Skies

Last week flying into Xian, China for a due diligence trip, I was impressed first by the immensity of the agricultural and industrial enterprise spread out for miles below us.  My attention was immediately diverted to the thick haze enveloping the city.

As the world’s foremost emitter of greenhouse gases in the world, China has a serious air pollution problem.  In Xian coal-burning power plants, aluminum and other industrial producers spew out noxious gases and particulates.  The sky is a matrix of building cranes below which construction sites churn up clouds of dust as new buildings take shape.  The many roads in the area are filled with cars and motorbikes as Xian’s 8.0 million residents hustle between home, school and job.

What few trees and shrubs there are along the streets in Xian proper are wilted and shriveled, suggesting a losing battle against acid rain.  Indeed, a recent report from China’s Ministry of Environmental Protection indicates that 200 of the 440 cities in the country with year-round monitoring have serious acid rain issues.

A couple of days around Xian visiting companies and attending lunch meetings provides insight into the dilemma China’s decision makers are facing.  Drive forward with economic development plans to provide employment for China’s ample population or hold back for a measured, environmentally sound strategy.  

So far the Central Government has chosen a “no holds barred,” full throttle approach.  Until recently The People appeared to be content with the gloomy atmosphere because they are enjoying unprecedented prosperity.  New homes, new appliances, new cell phones, and new cars are offering a lifestyle most had known only from Western magazines.

A recent article in the New York Times provides just a sampling of the high price being paid for those personal gains.  Sick children, ruined food crops, fouled water sources are finally giving China a wake up call.

We expect to see more action by government authorities in China to curb the rampant air pollution.  It follows that companies with pollution abatement solutions would be fertile for investment.  The still unfinished story of RINO International (RINO:  PK) makes it clear that investors will need to be discriminating.  RINO’s wastewater treatment solutions are compelling as a business model but management appears to have been less than honest in their dealings with customers and shareholders.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.  Crystal Equity Research has a hold rating on RINO.

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