Look at GE As a China Investment
Think about this: 25% of the world's electricity is currently produced on General Electric (NYS: GE) equipment. Now ask yourself if you think the need for electrical power is going to increase or decrease. For most, and especially for GE, that's a no-brainer.
In 2010, GE's Energy Infrastructure division brought in one-quarter of the company's revenue. That's $37.5 billion, and GE sees the potential for $60 billion by 2014, a prediction made from the demands of China and other emerging markets for huge increases in alternative forms of energy.
Chairman Jeffrey speaks
China in particular wants to double the amount of energy it now gets from natural gas, bringing it to 8% of its total energy needs. To help with that goal, GE Chairman and CEO Jeffrey Immelt was in Beijing last week to pass out $100 million in start-up money for innovative projects to improve the production of natural gas, biogas, shale gas, and coal-bed methane gas.
Of course, this wasn't done for charity but to further entwine China's energy needs with GE's interests. Immelt said he sees China as "a key part of our energy strategy," and the company already has three Chinese energy partners. They include ventures with Shenhua Group to improve the cost and environmental friendliness of coal gasification, Harbin Power Equipment to produce wind turbines for onshore and offshore use, and State Grid to develop smart-grid standards for the country.
And that's just the beginning of what GE hopes to be a large increase in China's and GE's mutual interests: Immelt said last week that he expects GE's energy business in China to eventually grow at a 25% to 30% rate each year.
Last year, GE's revenues from all its Chinese operations rose nearly 20%.
But wait ...
Some wonder about GE's involvement in a Chinese venture of a different sort, saying it will not only hurt American business but will also give to the Chinese government a valuable technology with military potential.
The deal in question is GE Avionics' 50-50 partnership with the state-owned Aviation Industry Corporation of China, or AVIC. The technology is a synthetic vision display system, a way of graphically depicting a plane's surroundings to pilots even under zero-visibility conditions. Obviously, this would be a huge deal for safety reasons alone, but airlines could receive a significant economic benefit from a reduction in weather-related delays.
The plan is for the GE-AVIC venture to install the synthetic vision system on a new commercial airliner that the China Aviation Industry Corporation is building, the C919. This airliner would be a direct threat to US aircraft maker Boeing (NYS: BA) as well as Europe-based Airbus.
The market for this new airliner could be quite large. Not only could Chinese airlines be enticed to buy a Chinese-made product from a Chinese government-controlled company, but so could foreign airlines that wish to operate in China. Potential sales for such an airliner are in the hundreds.
But GE is not the only American business competing in the Chinese aviation market. Rockwell Collins (NYS: COL) is producing avionics equipment for Air China's Airbus airliners. And jet-engine maker United Technologies (NYS: UTX) is a direct competitor with GE's jet-engine business.
GE and China, the bottom line
Former GE Chairman and CEO Jack Welch once said that "if GE's strategy of investment in China is wrong, it represents a loss of a billion dollars, perhaps a couple of billion dollars. If it is right, it is the future of this company for the next century." Chairman Jeffrey Immelt obviously agrees with his former boss.
Frankly, I can't argue with him, either. I look at GE's forward P/E of 9.2, its projected yield of 4.1%, its price to book of 1.2, its recent price under $15, and its strong hold on energy-production infrastructure, and I have to wonder why I don't buy more GE shares. Well, I just might when my Foolish trading restrictions expire in a couple of days. In the meantime, I'll give GE a thumbs-up in CAPS.
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At the time this article was published Fool contributorDan Radovskyowns shares of General Electric. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.