Investor enthusiasm for clean-tech plays in China remains strong, despite signs of faltering local government support for green projects.
Almost every investor conference or salon we attend these days has a separate panel discussion on clean tech – and the recent China CEO Investment Summit in Shanghai was no exception. During a packed session, a panel of lawyers, representatives from various stock exchanges and venture capitalists impressed the audience with the enormous and diversified opportunities offered by China’s green investment sector.
One of the main areas of opportunity highlighted by the panel was water. China has historically struggled to supply many of its regions with sufficient water supplies and the rapid industrialization and urbanization over the past few decades has exacerbated this problem. According to a survey by the State Environmental Protection Administration (SEPA) published in July 2008, 35% of China’s urban water supply did not meet safe drinking-water standards, up from 20% in 2006.
This dire situation has, however, created an investment opportunity. Speaking during the session, Huang Gefei, head of China Galaxy Investment Management, said his company had been investing in wastewater treatment companies for some time. Unlike other clean-tech sectors, such as solar and wind, wastewater treatment remains relatively untapped by investors, despite enormous demand. China’s total wastewater capacity in 2008 met less than 60% of demand, below the 70% base-line set by the State Council’s Comprehensive Working Program on Energy Saving and Emission Elimination issued in 2007. The central government included plans to increase spending on expanding wastewater treatment capacity in its RMB 4 trillion stimulus package.
FiNETIK recommends: The State of the Environment of China in 2008, Ministry of Environment, 24.06.2009
Another clean-tech investment area that interested the panelists was coalbed methane (CBM) exploitation. CBM, which is stored in coal and is generally not extracted by most coal mines, is an ideal substitute for natural gas and could help to ease gas shortages in China. In addition, panelists said that it had the potential to make coal mining safer and mitigate the risks of mine explosions – mine safety is a serious issue in China, with official statistics reporting 413,700 mining accidents and around 90,000 deaths last year. The government plans to bolster the CBM industry and increase CBM consumption to 10% of total gas use until 2010. Several supportive policies have been announced, including full VAT refunds, and the shelving of import duties on CBM equipment. Another factor that makes CBM exploitation attractive for investors is the relatively high profit-margin. CBM producers are allowed to sell gas at market prices that are not subject to the price ceiling set for natural gas. Although the sector is still in its infancy in China, it has seen several deals, including Baring Asia and Chengwei Venture’s $88 million joint investments in China Coalbed Methane Holdings Limited and IFC’s $15 million investment in Far East Energy (OTC:FEEC). Other investment opportunities highlighted during the session included energy storage, hybrid vehicles and thin-film solar technology.
The panelists stressed, however, that the continued growth of the clean-tech space in China was heavily reliant on government support. With the economic downturn continuing to bite, there is evidence that some Chinese local governments are letting environmental protection standards and clean-tech investments slide in their determination to maintain GDP growth in line with the nationwide 8% FY 09 growth target. This could create problems for clean-tech companies, especially in areas where heavily polluting industries such as paper and steel are key GDP drivers. Panelists mentioned that some desulphurization and wastewater treatment companies in particular were having difficulties as a result. This was a timely reminder that while clean-tech investments in China have enormous potential, they also carry significant potential risks.
Such a situation should not be a surprise in a country which has traditionally chased rapid GDP growth at the expense of environmental protection. But this same reason has convinced us of the central government’s new-found resolve to address environmental problems, as it now appears to recognize the fact that environmental degradation has eaten into China’s GDP growth. While conditions for clean-tech industry growth may vary from locale to locale, overall conditions appear promising – and judging by the number of people attending the recent session at the China CEO Investment Summit, this has not gone unnoticed by investors. The light at the end of the tunnel could be green.
Source: www.jlmpacificepoch.com, 10.07.2009 by Ivy Cheng
Filed under: Asia, China, Energy & Environment, News , CBEEX China Beijing Environmental Exchange, China 中国, Clean Technology, Economic Crisis, Environment, Financial Crisis, Investment, Risk Management, Shanghai
