Napoleon warned us, 'when the sleeping giant awakes, she will shake the world.'
It took a couple hundred years but those words have proven to be prophetic. The time has come for a few huge industries in China to awaken -- notably, autos.
In 2006, China surpassed Japan as the world's second largest auto market, after the United States. In 2009, China became number one.
In 2010, China produced 18.06 million cars, compared to 2.7 million in the U.S.
Looks like somebody woke up the sleeping giant. As incomes in China continue to rise in the future, car sales will keep improving as the country goes through an industrial age. China's auto industry did slow in the first two months of 2012, due to rising gas prices. But experts say January and February are 'notoriously difficult months,' and the brief slowdown doesn't mean 2012 will be a bad year.
As salaries continue to rise, so will the demand for cars -- and manufacturers like Ford aren't worried.
What are the implications of this emerging wave of demand for cars? In China, it means a skyrocketing demand for cars and energy -- but more importantly, it means there's a great opportunity for investors to profit.
The Car Craze
The American taxpayer saved General Motors (NYSE: GM), but it appears the Chinese consumer will be the ones sustaining it. Through joint ventures, GM is now China's top automaker. Today, GM sells more cars in China than it does in the U.S.
Other automakers are taking the dragon by the horns as well. Of particular note is Nissan Motors (OTC: NSANY.PK). Despite being late to the game, Nissans are a hit in China. The company aims to double sales to 2.3 million vehicles by 2015; a sales number slightly below the current market-leader GM's 2011 sales.
Nissan is also preparing to launch the electric Leaf in China, which I expect could do very well, especially given China's intention to confront a growing pollution problem.
The Second Dragon of Opportunity
With total vehicle sales in China surging toward nosebleed levels, oil consumption has gone through the roof. Oil consumption has outpaced production since the early 1990s and the gap has been widening ever since.
At first glance, this presents a problem in the short term. But there's one industry in the country that sees the writing on the 'great' wall.
That's why Chinese oil companies are moving into North America's oil and gas fields in search of energy and exploration know-how.
For example, China's state-owned oil company, CNOOC (NYSE: CEO) is putting a big stake in Canadian oil sands as well as U.S. shale formations.
Last year, CNOOC acquired struggling Canadian oil sands producer, Opti Canada, for a cool $2.04 billion. The acquisition marks CNOOC's second investment in an oil company mining in the vast Canadian oil sands. The region is the third-largest crude oil deposit in the world next to Saudi Arabia and Venezuela.
In the US, CNOOC is developing a chummy relationship with American energy powerhouse, Chesapeake Energy (NYSE: CHK). Chesapeake's China connection allows the company to pursue its strategy of turning valuable land into cold hard cash -- in an attempt to unlock shareholder value.
For its acquisition and partnership efforts, CNOOC is afforded the opportunity to invest in a valuable asset -- oil. But more importantly, the company gains crucial drilling knowledge to be used to tap massive energy resources back on the mainland.
CNOOC's business moves seem to be working out well and I'd bet 10 Renminbi (that's Chinese currency) there are more deals to come.
The Investing Answer: The auto industry is relatively mature in the West but is just starting to gain traction in the Far East. Major automakers with Chinese exposure stand to benefit most. This presents investors with a great opportunity to invest in well- established companies with exceptional growth potential.
The energy industry will reap the benefits of China's car craze as well. Expect to see a growing Chinese presence in major energy hotbeds around the world. Energy firms with the most promising assets will likely be targeted for takeovers or partnerships. Be prepared to take advantage of this growing trend.
Image courtesy of Dennis Davis Photos on Flickr.
A. Crawford does not personally hold any positions in any securities mentioned in this article.
