Archive for the ‘Cleantech Trip to China’ Category
Find the Sustainable Media Group’s “The Tao of Green” here.
Note: This is Joe Borich’s report on the March 2012 Cleantech Study Mission to China. The trip began in Seattle and proceeded to Beijing and Shanghai. Nearly two dozen participated in the trip.
Joe’s complete trip notes can be found here.
Joseph J. Borich is President of the Washington State China Relations Council. Prior to his current position, Joe was a Foreign Service Officer beginning his career in 1972. He has been closely associated with China throughout most of his career, serving under every president from Nixon to Clinton in a China-related capacity. His last assignment was as Consul General in Shanghai from 1994 through 1997; he previously helped open this Consulate General in 1980. He also served as Director of the Taiwan Coordination staff in the Bureau of East Asian and Pacific Affairs in the Department of State, and prior to that as the last Deputy Chief of Mission in the former U.S. Embassy in Mogadishu.
Washington State has become a global leader in clean technology including alternative energy sources, energy and water efficient building construction, smart grid and smart city technology, and biotechnology. Jointly organized by the Washington State China Relations Council, the Trade Development Alliance of Greater Seattle, the Washington Clean Technology Alliance, and the Northwest Energy Angels, the purpose of the business mission was to give clean tech practitioners and investors from our area a look at China and what it’s doing in the clean tech area, as well as to examine opportunities for cooperation and investment.
Our delegation met with the U.S. Embassy, the State Council’s Development Research Center (the Chinese government’s top economic think tank and responsible for the inputs to the five-year plans), energy and clean tech consulting firms, China’s State Grid (its principal power company with over one billion customers), wind, solar, and battery companies, and several clean tech-focused venture capital firms.
Thoughts from American Businesses in China
At the 30,000 foot level, we learned that American businesses operating in China are for the most part optimistic about their near-to-mid term prospects. Fifty-four percent of those polled by the American Chamber of Commerce are already expanding, or plan to expand, to second- and third-tier cities in China. Basic optimism aside, American businesses remain concerned about inadequate protection for their intellectual property (including brands, patents, and proprietary technologies); the availability of human resources and the rising cost of labor; obtaining necessary certifications and approvals; and the somewhat uncertain and oft-changing regulatory environment.
Among the significant economic trends currently present in China are a slowdown in GDP growth this year and next (although there seems to be little concern about a hard landing). Along with slowing growth, China’s foreign exchange reserves are also declining in part because of China’s shrinking global trade surplus and also because of a rising tide of outbound direct foreign investment by Chinese firms. Slowed growth is partly due to declining exports and slowing construction; but the central government’s renewed efforts to rebalance China’s economy is also likely a factor. By 2010, China’s top leadership had reached the conclusion that growth driven principally by fixed asset investment and exports was rapidly becoming unsustainable, a lesson driven home by the ripple effects of the global financial crisis of 2008-2009.
Rebalancing is intended to turn growth more in the direction of domestic consumption. This in turn requires that China invest more in items like health care, education assistance, social security/retirement, and low cost housing, programs for which there are still relatively few beneficiaries in China. As a result, the propensity to save among Chinese is off the charts at over 40% of income, while the propensity to consume is very low (domestic consumption accounted for only 35% of China’s GDP last year – less than half the proportion of developed countries). The adjustments necessary to rebalance the economy, however, will slow growth at least in the short run, and also collide with the vested interests of huge state owned enterprises and conservative elements in the Chinese Communist Party who prefer strong central control of the economy and the political system. Although rebalancing is an integral part of the current five year plan (2011-2015) as it was in the previous one, relatively little headway has been made so far.
Urbanization is another compelling trend in China today. For the past decade and for the next decade at least, average annual rural to urban migration has been and will continue to be around 20 million. In 2010, there were 171 cities in China with a population of one million or more; about 47% of the entire population lived in cities then. Plans call for an urban population constituting 51% of the total by 2015, but recent figures released by China indicate they may have hit that target already. This demographic trend has several important implications, not the least of which being that between now and 2030 China will have to expand its urban environment by roughly the equivalent of the population of the U.S. It also portends a dramatic increase in energy intensity since urban residents use far more energy than their rural counterparts.
Along with the pressures of urbanization and the need to rebalance the economy, China’s leadership is also facing growing discontent from the widening income gap (as one example of this rural residents’ incomes are only 1/5 of that of urban residents), the inequitable household registration system that disadvantages rural residents and those who have unofficially changed their residences to the cities (most rural-to-urban migrants fall into this category), and the cumulative effects (including those on health) of China’s badly damaged environment. Over the next 12 months, China’s leadership lineup will undergo a major change; the new lineup will be faced with the daunting task of effectively addressing these issues, and will likely have to do so sooner rather than later.
China’s Five-Year Plan and Clean Technology
We learned about China’s current (12th) Five-Year Plan from several sources. Of particular interest to our group were the presentations on the plan’s treatment of low carbon development. China now leads the world in petroleum importation – over 50% of the oil it uses today is imported. That figure will grow to 70% by 2020. China’s use of fossil fuels is creating huge problems for China’s environment including pollution-based health problems and rising morbidity/mortality rates, and other problems like acid rain.
To try to address these problems, China has adopted some ambitious goals, including:
- Reducing carbon emissions per unit of GDP by 40-45 percent by 2020, compared to 2005;
- Boosting non-fossil fuel energy sources to 15 percent of all energy by 2020; and
- Substantially increasing forestation in China.
What does “low carbon development” mean in China?
The 12th Five Year Plan specifies by 2015:
- Reducing carbon intensity by 17%;
- Substantially reducing energy consumption in industry, in particular in such high energy consumers as the steel industry (government subsidies will be employed to help meet this goal);
- Improve building construction and consumer energy use;
- Boost wind power as an energy source from 40 GW in 2010 to 100 GW;
- Increase the use of solar energy from 0.3 GW in 2010 to 15 GW;
- Carry out energy pricing reforms for electricity and gas;
- Deploy some form of carbon trading, although what system exactly will be used – e.g., cap and trade – is still much disputed as is the use of a carbon tax.
A special emphasis will be placed on relevant industries (including, presumably, subsidies, tax incentives, and other government tools for promoting rapid development): new energy; the environment; autos (especially EVs); modern knowledge technologies; biotech; and high speed transportation. In all, these favored sectors will constitute 8% of GDP by 2015 and 15% by 2020.
Building energy efficiency standards are currently good, but are not well enforced. This is changing for the better even as stricter standards are being adopted. Also energy pricing is being further rationalized and carbon trading is being gradually introduced. The government has set the goal of one million Electric Vehicles on China’s roads by 2015, though this goal is probably too ambitious.
China has long maintained an industrial policy, attempting to pick winners and losers among various industries and within industries, among competing state owned enterprises. The 12th Five-Year Plan identifies seven strategic industries that will enjoy government patronage:
- Energy conservation and the environment
- New energy
- Electric vehicles
- Medical technology
- Next generation IT, and
- New materials
Clean Energy and Power Supply in China
State Grid, China’s largest power company covering 88% of the country’s area, is the largest utility in the world and last year distributed over 2700 terawatt hours of electricity. The company is concentrating its efforts on overall construction of a smart grid by 2015. China currently has the most advanced system in the world for using UHV transmission and non-fossil fuel energy sources (and is way ahead of the U.S.). State Grid is also building a fiber optic network form smart grid information/dispatch that will also be used eventually to carry telephone, cable TV and other signals a well.
China is also doing very advanced work with battery technology, both for energy storage and for commercial use in consumer items and EVs. Prudent Energy Company, for example, has developed a storage battery based on use of a vanadium electrolyte. This type of battery poses little or no environmental risk and is nearly 100% recyclable. Each battery has a lifespan of 15-20 years and is ideally suited for storing and stabilizing wind and solar power.
Lishen Battery Company is using improved lithium ion technology to make batteries for electronics manufacturers (including Foxconn and Dell), as well as EV batteries. Lishen batteries currently power a vehicle for up to 200 KM (125 miles) between charges, but new technology the company will soon be incorporating into its batteries will double the distance between charges. Lishen has been cooperating with Washington State’s Demand Energy for the past two years on smart grid and energy storage to develop distributive energy systems.
Among the venture capital firms we met there are differing investment strategies. Chrysalix, a clean tech-focused, ten-year old investment fund, looks for returning Chinese students and academics that are bringing back with them new technology ideas with commercial possibilities. In addition to providing capital, Chrysalix also helps nurture and manage the startups in which they invest, focusing, in particular, on protection of proprietary technology.
Tsing Capital, on the other hand, invests predominantly in early growth stage companies where the technology has already been commercialized with some initial product sales. They are not interested in basic technology still under development, such as Chrysalix. Moreover, virtually all of their investments are in foreign origin/owned technology (although frequently with some Chinese modifications). This also distinguishes their investment model from Chrysalix’ whose technologies are predominantly Chinese owned albeit by returning Chinese students.
And finally, a sampling of some random thoughts from the consulting firms with which we also visited.
- Although energy – and in particular, clean energy – grabs most of the attention focused on China these days, the most critical issue facing China by far in the decades ahead is water. With only 2100 cubic meters of water per person, China’s available water is only ¼ the global average and is not evenly distributed.
- Over the next 20 years, China will add 50 new cities of over one million people; fifty thousand more skyscrapers; and 170 more mass transit systems. In that time, one of every two new buildings constructed in the entire world will be in China.
- As a talent pool base, Shanghai has become China’s Silicon Valley. Students along with overseas Chinese academic “A” players returning from abroad are being offered incubators for their new ideas, high salaries, and generous allowances. Academics are also given high status and recognition and the opportunity to run their own labs staffed with top graduate students. Despite this influx of returning “sea turtles,” qualitative improvements in Chinese innovation and creativity are likely to be made only gradually over time.
The clean tech mission participants – most of whom had not been to China before – were uniformly impressed by what they found there. For all the progress that China has made over the past thirty years – and no country in history has ever experienced more growth and development in such a short period of time – there is still a very long way to go, as we also discovered. But, in the area of most interest to our group, clean technology, China is on the way to becoming a world leader. For us, this presents both opportunities and challenges.
For more information, including the WSCRC’s trip to Chongqing, click here.
For more observations from the trip, please visit these links from the other organizers of the business mission and delegates.
On China by Henry Kissinger is the book I should have read first. A review of the book by Richard Stoyeck on the Amazon website advocates: “One would have to be foolish to visit China and not read this book first to truly benefit from such a trip.” I am inclined to agree. As I read this book, while traveling through China, things began to make sense to me.
Kissinger is, of course, a controversial figure. There is no doubt that he is smart. He has been a principal character in US-China relations for forty years. He has his own story and legacy to defend and there may well be significant portions of the book that a real China hand would find objectionable. For me, this was not a problem.
I found On China to be an excellent overview of the last several hundred years of Chinese history as seen from the perspective of the West. For example, it was immensely helpful for me to understand something of the context of “Middle Kingdom” and the embarrassment of foreign domination over the course of most of the nineteenth century and the chaos of the first half of the twentieth century.
While I can certainly understand how experienced China experts would find bias in Kissinger’s view of the last half of the twentieth century, for me that wasn’t a problem. I enjoyed Kissinger’s recollections and history of events such as ping-pong diplomacy; reading the details was gripping.
On our first full day in China, we had a chance to visit the Great Wall, Tiananmen Square, and the Forbidden City. As our group approached the Square, our guide told us that when his mother visited Beijing, she never failed to visit Mao’s tomb. This made no sense to me—wasn’t Mao the mastermind of numerous atrocities and millions of Chinese deaths? How could he be revered today?
Kissinger helped put this in context. Yes, the Chinese might concede, the Cultural Revolution was an error. Yes, the Great Leap Forward resulted in millions of starvation deaths. But it might also be true that the prior 150 years had set China so far back that a complete destruction of the existing institutions was necessary. I am not sure that this makes any sense to a Westerner, but given the economic success of the past several decades, one can understand how the Chinese might reach such a conclusion.
These kinds of insights made the book a valuable read for me.
It was a bit like Seattle today in Shanghai. I started the day with an early run along the Shanghai Bund, a beautiful waterfront promenade. The temperature was perfect and there was a light rain coming down that felt good. Unfortunately, as the day moved along, the rain became a little more than Seattle-like.
Our first–and only–presentation of the day included the Vice Mayor of Hai’an and Peggy Liu of the Joint US-China Collaboration on Clean Energy (JUCCCE).
Hai’an is a city of a million people covering 1,000 square kilometers. The GDP exceeds US$10 billion. The city is dealing with growth issues that come with its expansion of the construction and textiles sectors. Pollution and environmental cleanup are becoming increasingly important issues.
JUCCCE is a non-profit organization endeavoring to accelerate cleantech in China. JUCCCE focuses on convening and activating high-level influencers across all sectors and borders. They put on events and trainings that affect technology development, policy maker training, social behavior.
So ends the official trip. All of us are headed out tomorrow morning to different destinations. There is a lot to ponder.
This was my first trip to China. As you may have been able to discern from earlier posts, I am not only interested in cleantech business and policy, but I am trying to understand some aspects of Chinese society and how they make decisions.
I certainly have learned a lot. I am looking forward to finishing some more reading and post-trip debriefings. I will post more on what I have learned in the days to come.
For now, I am headed to Hong Kong for a couple of days with my friend, Hal Calbom, then back home.
We started the day early at 645 a.m. to beat the traffic. We did–and got to spend some welcome time at a Starbucks.
Our first meeting was with Fred Chang at Chrysalix Capital and Peter Corne of Dorsey & Whitney. China was described as a nation of enormous cleantech potential, but that it had not created much innovation in the sector yet.
But, we were told, it is inevitable.
China is doing “all the right things” to be a great innovation player. Academia is being reformed and more students are coming or staying home. Research is focused on industrial improvements. More research money is being provided. “It is not if, but when” it will become successful.
We moved on to APCO Worldwide. We heard a detailed analysis about New Energy in China with a focus on regulatory perspectives by Deputy Managing Director Reggie Lai.
Reggie described the government of China as the “most powerful government in the world” and that it essentially runs everything in China. There is now, however, some dissension in the National People’s Congress: the nation’s budget was adopted with 500 dissenting votes (of 3,000).
The Chinese, he said, have been concerned about the value of their US debt holdings and inflation. This has resulted in increased, targeted investments in the US. See Reggie’s presentation here.
We met last with Harrison Tu at Infinity Solar Ltd. The company has spent the past three years developing thermal solar technology that they hope to begin selling commercially soon. The technology allows the company to install a solar thermal unit on homes, which can be used to heat water and the home, and, eventually, air condition homes. The company believes that there are large markets for the technology in China and globally.
I have only been in Shanghai for a couple of hours–mostly in my hotel room. But it is HUGE. Our bus ride from the airport took about forty-five minutes and you could probably lose Seattle ten times–easily. High-rises stretch forever in every direction. If there is an end to them, I haven’t spotted it yet. And many are brightly lit.
We began the day with an invigorating briefing at the US Embassy in Beijing. Rosemary Gallant and several other embassy staff were great in putting what we were seeing in context. As it is 11 p.m. here and I have to be up 530 a.m., I will summarize some of what we discussed in bullet points. Some of this stuff is really thought provoking:
- The rate of growth of the economy is down to 7.2–7.5 percent. That is causing some concerns in China. People expect more. The government is also concerned about inflation.
- The US trade deficit is around $300 billion, but exports are up.
- There are more than $500 million netizens in China.
- There are 356 million mobile phone users–but the numbers could be twice as big.
- Domestic consumption is 35%–very low compared to other world economies (the US is 70%).
- The national savings rate for individuals is 40%–but for people under 30 years old it is essentially zero.
- There are 171 cities in China with a population of one million or more.Chinese economic demands are forcing the nation to be more foreign policy oriented. Chinese nationals living outside of the country are also of concern and are requiring governmental attention (in Libya, for example).
- The party has great concern about increasing social disparities, particularly in housing, health care, and education.
- The Party Congress will be held this fall and new leadership will be selected. There is debate about the future direction of the nation–some believe that more government control of the economy is needed; others believe that increased public participation will result in more sustainable growth. Complicating this are groups of entrenched interests, who are reluctant to support alteration of a system that has brought them great benefit.
- Some Party members are concerned enough to worry about the survival of the Party over the next ten years, if these issues are not addressed.
- “The Party always works on consensus.”
- Seventy percent of health care dollars are paid out of pocket.
- The twelfth five year has big cleantech and environmental goals. These are real governmental objectives for which strong efforts will be made to accomplish them.
We went on to a briefing by Dr. Wang Jinzhao at the China Development Research Council. Dr. Wang told us about the Five Year Plan and low carbon development. He noted that China imports about half of its oil today and expectations are that it could increase to 70% by 2020. The nation has ambitious plans to develop wind and solar energy. Building efficiency will play a large role. There is a goal to put one million electric vehicles on the road by 2015. Carbon trading plans are being considered. It is unclear at this point what role natural gas will play in China’s energy future. There are efforts to increase gas utilization from 3 percent to more than double that amount. At this point, it is unknown what kind of usable reserves might be exploited from fracking.
Following lunch, we began our journey to Shanghai–which took forever. There was a long wait and delay in the Beijing airport and we got in late. Now to bed….
It was, for the most part, a beautiful day in Beijing. The skies were far clearer than yesterday and was even pretty warm in the middle of the day. Our new friends at the American embassy told me about times when they couldn’t even see across the street and remarked on how nice it was now.
Our day began with two briefings. One was by the China New Energy Chamber of Commerce; the second was from Prudent Energy.
The New Energy Chamber had been established in 2006 following the establishment of the renewable energy law. Their purpose is to provide expert, media relations, policy recommendations, research, meetings, and information. It was noted during the session that when components, machinery, and equipment for solar PV is considered (in addition to PV modules), the trade gap in this field is in favor of the US.
Prudent Energy is an VRB energy storage company that was born out of technology acquired from Vancouver, BC in 2009. It has 200 employees, forty patents, has raised investment capital from US sources, and currently has fifty projects underway or complete.
After a fine Beijing train station KFC meal, the delegation embarked on a bullet train that reached the speed of 300 Kph. We were amazed not so much by the speed of the journey to Tianjin, but how smooth the ride was.
In Tianjin, we met with the president and founder of Tianjin Lishen Battery Joint-Stock Co. Ltd., Mr. Qin Xingcai and his team. Lishen is an impressive operation. They are working with Spokane company, Demand Energy, to create demand smoothing energy storage systems. In addition, they have a joint venture in the creation of the Coda electric car, which is just entering the US market.
The founder and his team toured us around the facility and talked to us about their company and views of the market. They are big believers in electric vehicles and are working on both cars and buses. They are endeavoring to create recycling systems and to create much more battery efficiency in the same mass. Among the best bets for improved batteries are advances in materials, they said.
Our day ended with a great reception featuring former Washington State Governor and current US Ambassador to China, Gary Locke. Ambassador Locke addressed the delegation warmly and emphasized the seriousness of cleantech issues in China. Efforts that the Ambassador and his team are making in Beijing and throughout China, he said, were aimed at creating more jobs and benefits for both Americans and Chinese.
It was apparent before 6 a.m. that there are environmental problems in China. I headed out for a short run, but before I could get around the block I could feel and smell the dirty air. I felt a little sick for an hour during the late morning. I think I will try the indoor gym tomorrow.
Today was a full day of meetings. We started out with a briefing by the China Greentech Initiative. Elle Carberry told us that China’s experience bringing people out of poverty has been remarkable, but that it has come at an environmental cost.
She and her team emphasized the importance of water in China: It may be the largest issue in China. They seen it as a bottleneck inhibited future economic growth. In fact, there is an effort to divert water resources in the south of China to Beijing–in an amount the size of Lake Erie. Further, there will be efforts to significantly increase the development of natural gas–which requires enormous amounts of water.
We moved on to a briefing at the State Grid Corporation of China. SGCC is a huge nearly nationwide utility. It has 1.56 million employees, covers 88 percent of China, and has over one billion customers. The work that they are doing to find innovations to deliver power more efficiently and cleaner was impressive. The knowledge gained through many of their pilot projects may glean insights that can lead to improvements the world over.
A female executive, Li Wei, Regional Manager, International Department, of the Guodian United Power Technology Company Ltd. led the next discussion. Ms. Li is responsible for sales throughout North America, Australia, and Africa for United Power. The company has installed 1,337 wind turbines in China and in Texas. The largest of these wind turbine generators is capable of producing 3 megawatts.
Our final meeting of the day was with Shelby Chen, Managing Partner of Tsing Capital, a cleantech venture fund located in Beijing. Tsing Capital is close to closing a $350 fund and is on of the oldest and most experienced VC firms in China. Mr. Chen noted that, per unit of GDP, China requires 5 times the energy that Japan requires and 3 times that of the US. He believes that there are great business opportunities in China, but the firm’s investment strategy isn’t based on the ‘killer app’ model. Rather Tsing Capital looks for commercial success potential first. His advice to American firms looking to get into the China market is to make yourself into a Chinese company (in China).
We closed the day navigating through enormous traffic jams.
To Western eyes, the Chinese economic system is a mystery. Part communist, part state commanded, and part entrepreneurial. How have the Chinese been able to create something brand new that has been so successful–and can it last?
Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise by Carl E. Walter and Fraser J.T. Howie is an endeavor to investigate this issue.
The Communist Party “treats its banks as basic utilities that provide unlimited capital to the cherished state-owned enterprises.” Walter and Howie describe a financial system in which the motivation for business activity is not the same as the goals of Western counterparts, but rather is to act as an arm of the state. It is a system, they say, that is fully controlled by the central government and with few alternatives.
As a result, enormous numbers of non-performing loans exist. Walter and Howie estimate that total debt to GDP (including non-performing loans) may be as high as 76%. This is troubling. Could the stage be set for a crisis like the US housing market meltdown of the last several years.
Maybe. Ultimately, these Chinese institutions are creatures of the state. As long as the state backs them, they won’t crash. The worry might be better directed at the willingness of the state to back these institutions if political or economic circumstances turn.
Flying west for eleven hours was a lot less difficult than I had feared. We arrived in Beijing around 5 p.m. after a non-stop flight from Seattle. We had very little difficulty in getting through customs, into town, and into the hotel. A terrific Chinese dinner with ten colleagues had me ready for bed. I fell asleep easily after being up for over twenty-four hours.
My first impression of Beijing was that it wasn’t as different as I thought that it might be. It certainly didn’t seem like the Third World. There weren’t hordes of bicycles or other reminders of days gone by.
The buildings seemed largely industrial–at least the ones that we passed that were probably urban multifamily housing. There were fields of identical large buildings. The downtown commercial buildings could be in any modern city in the world–lots of interesting designs and differences. I would guess this is because the residential buildings are mostly government built, but the commercial buildings are sponsored by individual companies.
In fact, much of what we saw looked like virtually any huge city in the world. There was surprisingly little traffic on the drive in on Saturday afternoon and as we left early Sunday morning. But by mid morning, the roads were becoming busy, then crowded.
Given that the first day was a Sunday, the group was scheduled to tour the Great Wall of China, Tianammen Square, and the Forbidden City. And, of course, they got us to go into three factory/tourist traps. We didn’t buy much.
Our first stop was the Great Wall. Dating from the early 1400s, the Great Wall of China stretches 4,000 miles. The pictures don’t really do is justice. It is magnificent–and a hard climb to get up.
An eleven-year-old girl befriended us in the parking lot. She came to the Great Wall on Saturdays to practice English with her friends. We became her new friends and she gave me a pin.
We had a good, if somewhat bland, Chinese lunch. We noticed that the foreigners were all together upstairs and the Chinese were all downstairs. I am guessing the food was a bit more interesting downstairs!
Some of us were a bit surprised at how similar Beijing is to America. We were expecting something vastly different. Chinese standards of living have clearly improved massively over the past three decades. The crowded streets, for example, were filled with car brands that were very recognizable: Volkswagen, Ford, Toyota, Audi. There were some similar brands on storefronts. There were lots of signs in English, although we were occasionally amused by grammatical errors (“Protect the cultaral artifacts)”. It is almost as if English is a second language in China….
Tiananmen Square and the Forbidden City were massive. We walked for the better part of two hours from Tiananmnen Square through the Forbidden City. We noted a number of uniformed guards in Tiananmen Square who looked like they were very serious about their jobs. For the remainder of the walk, however, there was little evidence of any kind of security forces of any kind–notwithstanding large crowds in a cultural treasure.
Tomorrow begins the work sessions.