China Three Gorges Renewables Group Co Ltd (600905)

I have just bought my first batch of China A-shares, more specifically China Three Gorges Renewables Group Co Ltd. If the price is right, I intend to accumulate my stake in the company every month. Else, I will put the money in other A-shares which I have identified and perhaps share at a later time. Since Three Gorges Renewable is the first among those identified that I have invested in, today’s article will explain why I chose this company.

Background Of Three Gorges Renewables

China Three Gorges Renewables is a subsidiary of China Three Gorges Group, which main business is to supply electricity. There are quite a few subsidiary companies under the group, of which China Yangtze Power is perhaps the most famous one of the power supply sector listed in the CSI 300 index. Three Gorges Renewable, as its name suggests, is a company which focuses solely on generating electricity via renewable means such as wind and solar power.

The Demand For Electricity

The Gold Rush in 1848 attracted about 300,000 to California. But the most commonly known story to all is that the biggest winners were not those who dug for gold, but the businesses selling the tools and equipment to the miners. The advent of Chat GPT and its frequent updates, and the upgrade to Sora has already triggered the AI rush. Big companies to small developers are rushing to build their own versions of AI tools, claimed to be able to solve a variety of problems.

One of the most important thing in AI is the computing power. The ability to take in huge amounts of data, to process it in meaningful manners, and to generate an output which makes sense to the user. The more computing power which is needed, the more electricity it will use. Bitcoin mining is one perfect example. The AI trend is unstoppable. AI will be the next generation’s means of production, and electricity is needed to support it.

Hence, power companies should see huge profits.

The Country

Every country has their own power companies, for every country needs electricity. However, not every country is technologically advanced enough to use AI for their next generation means of production. I do not mean using the simple Chat GPT to do up some homework or to prepare some fanciful PowerPoint slides. I mean the ability to develop or to use AI tools on a scale wide enough to propel the country to another level of production and domination.

We look back at history for examples. When the steam powered engine first came out, Europe industralised, which led to rapid colonisation of territories across the planet. This technology was later adopted by other countries, but while these countries could adopt them on a small scale for their own domestic use, they do not have the ability to use them on a massive scale to boost production to another level. Till today, the Middle Eastern countries, the African nations and even North Korea could not industrialise properly, much less being a leader of manufacturing like China.

When we apply the same concept to the future, 2 countries who could achieve it come to mind – the US and China. Japan and South Korea, while technologically advanced, has been placed on a chokehold by the US, and by now we know that the US will never allow these 2 countries to surpass them. Taiwan, despite being a leading nation in semi-conductor, has been stagnant for the past 20 years and it is just a matter of time before they are completely taken over by China. African and Middle Eastern countries are out for the obvious reason that they have not even achieved proper industralisation. South-East Asia are generally too backward except for Singapore, which is too small. Europe is a fragmented union plagued by each country’s own agenda and is declining.

Between the US and China, both are good countries to choose from. It is my personal preference to choose China due to its potential for growth and because the US stock bubble is getting too big. Also, I am of the opinion that the US is on a slow but steady decline.

The China Stock Market

Earlier, I have said that the US stock market have to grow over the years because that is where most people put their money in. In China it was the property market. That was one of the reasons why over the past 10 to 15 years, China’s property market has been rising but their stock market has been stagnant. In fact, China’s stock market is so lacklustre that even the Chinese do not believe in their own stock market anymore.

However, with the collapse of their property market due to policy issues, there is a need to prop up another market for the people to place their hope in. And the stock market is a good choice. China has recently replaced the top guy in charge of their stock market, who like his predecessors, promised changes and a shake-up to the stock market.

One could definitely argue that just like every generation of politicians who made empty promises, the current guy is no different. But I would say that with the current situation of China, with the intended collapse of the property market, they critically need the stock market to be the new hope for the people. Therefore the ‘cannot fail’ factor of this n^th reform will have a much higher chance of success.

The Company Itself

Electricity can be generated via different means – fire (eg coal), water, light (solar), wind and nuclear. For convenience I will just use these terms to denote the means of generating power. Electricity generated from fire is cheap, easy but pollutive. Nuclear energy is clean but expensive and dangerous. Of the 5, the other 3 of them are clean and renewable but limited by nature and storage. Yet despite this, there are 2 reasons why I choose Three Gorges Renewables – the focus on renewable energy and its price.

The West made its first pot of gold through slavery (starting year 1526), then later abolished and condemned it (US banned slavery in 1865). It was not because as humans they have attained a higher level of enlightenment. It was because they wanted to prevent other nations from quickly getting rich through easy blood money. The industrial revolution (starting year 1760) which happens after that comes at the cost of great pollution but brought these industralised countries up another level.

Similarly, once they have reached post-industralisation, they moved to stop the others from getting rich through pollution. Basically, once certain countries have achieved the easy way out, they move to block the others from doing so. We can see this not only in the energy sector, but the nuclear weapons sector and the semi-conductor sector.

As China strive towards replacing the US as a role model and the big brother to the world, China too must act the part as a concerned member of the planet and pave the way for a future of renewable energy. I would expect Three Gorges Renewables to have a big potential for growth in this area.

The Price

Yet despite what I said above, one of the significant considerations that I have now is the price. Three Gorges Renewables (mainly wind) now is just cheap, and at 4.80 RMB per share while China Yangtze Power (water) is at more than 5x the price of 25 RMB per share. I am accumulating Three Gorges Renewables now but am also monitoring Yangtze for any price drops.

That being said, while renewable energy is the priority, one should not just omit out fire and nuclear companies totally. Yes renewable energy may be the future but power is power. Regardless of the means of power generation, power is in huge demand now and will be even more so in the future. There is great potential for growth in all areas. Just because I am not considering fire and nuclear now does not mean that it is permanently out of my consideration list.

Admittedly, this portion is getting somewhat less objective and more subjective. The stock price of all other power companies within the CSI 300 had been rising in prices, with the exception of Three Gorges Renewables. One of the reasons is that its projects which will be completed in the future has not yet begun to reap in the rewards while other companies are already reaping in the profits.

What goes up must come down, and what falls down will go up eventually. Being in the CSI 300 and with a backing of the parent company Three Gorges Group, the probability of Three Gorges Renewables falling to nothing is low. And I do not like the chart of other companies stock prices being repeatedly rising over the past consecutive months. One may argue that just like Bitcoin or Tesla or even Nvidia, the stock price will reflect the actual value of the product, and so what if it has risen over the past few months? If it has that much value then it can rise another 10x or 20x more.

Yes I get that logic. As I have said earlier, this portion is just my personal preference. I want to buy a stock which I am comfortable with. If I buy something and I cannot sleep properly at night, then I rather not earn the money.

Timeframe of Investment

My timeframe of investment in this company is measured in years, not weeks and not months. The rise of AI is still in the very initial stages, with many more years of potential before reaching maturity. Whether China will catch up to US in the field of AI or not is a question mark, for the US is so far ahead of China that the Chinese are getting panicky, triggered by the introduction of Sora (OpenAI’s latest text to realistic high quality video AI model). But China definitely has the ability to supply the power needed for AI to take over as the next means of production.

In this case, power is indeed money.