Importing Environmental Technologies to China
By mid-2007, the Shuikoushan Non-Ferrous Metal factory in Hunan Province faced a crisis. As part of its 11th Five-Year Plan (2005-2010), the Chinese government was closing down high-polluting factories–and the Shuikoushan factory was among those at risk. The 110 year-old state-owned factory, with a gross annual income of more than US $1 billion and 12,000 employees, was emitting high levels of heavy metals into the local water supply. This polluted water was flowing directly into the Xiang River and affecting the drinking supply for millions of people within the nearby city of Changsha. Despite several attempts to remove the heavy metals by using conventional chemical treatment methods, the factory continued to emit dangerous levels of pollution.
In late 2007, US-Pacific Rim International, Inc.(USPRI), a US consulting company that assists US companies market and sell their products and technologies in China, began to promote the electrocoagulation (EC) water treatment system of one of its client companies, Kaselco, to the factory. USPRI highlighted the EC system’s unique electrochemical process to remove heavy metals from water. Faced with the risk of closure, the Shuikoushan factory decided to try the product.
During a pilot test of the EC system in late 2007, the factory found it could almost completely eliminate the heavy metals that the factory was emitting. After three months of further tests and negotiations, the Shuikoushan factory decided to purchase and install the EC system.
The EC system began operating in May 2008, and the results were dramatic. The factory was able to reduce the amount of heavy metals it discharged by almost 99 percent, meet the highest national water pollution emission standard and treat 4,100 tons of water a day. Deputy Director of the Hunan Provincial Environmental Protection Bureau Xie Lishuai inspected the EC system and praised the project as a model for wastewater treatment. In the space of several months, the Shuikoushan factory had gone from being a dangerous polluter to a socially responsible enterprise.
Even as China faces enormous environmental challenges, success stories like Shuikoushan’s EC system reveal an excellent opportunity for US environmental companies to export their advanced technologies to China. American companies can play a role in helping China address its environmental problems.
A review of some of China’s environmental statistics demonstrates that as China continues its rapid growth, it also faces significant environmental challenges. Currently, 70 percent of the country’s rivers, lakes and reservoirs are not safe for human use, 70 percent of its energy comes from high-polluting coal and 5,800 square miles of its grasslands are lost to desertification every year.
As these environmental problems grow, the market for environmental products and technologies is expected to expand as well. The China Greentech Report 2009 estimates that by 2013 the market for environmental technologies will be between US $500 billion and US $1 trillion. According to the US Foreign Commercial Service, the greatest opportunities for US environmental companies lie in municipal and industry wastewater treatment technology, hazardous waste and medical waste treatment technology, waste-to-energy technologies, de-SOx and de-NOx technologies, as well as air and water monitoring equipment.
Investments by the Chinese and US governments on a variety of environmental initiatives in China also offer opportunities for US greentech companies. Of China’s US $586 billion 2008 stimulus plan, approximately 37 percent is dedicated to greentech-related projects. China’s upcoming 12th Five-Year Plan (2011-2016) is also expected to build on the 11th Five-Year Plan’s significant focus on the environment.
US-Chinese government cooperation on environmental issues has also been growing. During President Obama’s visit in November 2009, the US and China committed to spending at least US $150 million of public and private funding on a US-China Clean Energy Research Center, as well as agreeing to a host of other initiatives related to energy, coal and shale gas.
The complexity of many environmental problems will also require collaboration between US environmental companies. Multiple companies may be needed to complete just one environmental project. For example, a lake clean-up project could require different companies to provide industrial pre-treatment, pipes for dredging and adequate infrastructure. Such collaboration is especially important for small and medium-sized enterprises, when they approach Chinese municipalities and companies they can offer comprehensive environmental solutions. Public-private initiatives such as the American Water Working Group, sponsored by the Foreign Commercial Service, and the US-China Energy Cooperation Program, based out of AmCham China, are promising examples of such collaboration.
Even while there are bright prospects for US environmental companies in China, the challenges of cost, intellectual property rights (IPR), lack of transparency in project bidding and domestic competition must be recognized by any greentech business that wants to export to the Chinese market.
The advanced nature of some US technologies means their prices can be relatively high in China, but still find a place in the market. While the higher costs of certain US technologies will price them out of some markets here, it should not lead US environmental companies to give up on the country completely. Many Chinese companies respect, and are willing to pay a higher price for, high-quality US technologies. In addition, while costs may be too high in some regions of China, in more developed parts of the country, Chinese companies and state-owned enterprises will pay for exceptional US products. Further, companies should consider becoming original equipment manufacturers in China for all or part of their products in order to drive down costs.
As with any company that wishes to export its technology to China, US greentech companies should be particularly concerned about IPR. Even as IPR enforcement has improved in recent years, and even if appropriate safeguards are taken, it is almost certain that companies will have some of their technology copied in China. Recognizing this reality, and treating it as part of a business strategy rather than a legal issue, is a necessity for any US environmental company looking to export to China. To stay ahead of IPR violations, companies must ensure that their products remain leaders in their field.
The lack of transparency in the bidding process for environmental projects can also prove a challenge for US companies. In order to address this issue, companies should hire Chinese staff or engage local sales agents to represent them in the bidding process. Local knowledge of Chinese culture and business practices will enable Chinese staff to illuminate the complex and opaque bidding process for American companies.
Significant public and private sector investments in China’s green industry means US environmental companies will face growing competition from local Chinese companies. Nonetheless, American companies can continue to offer unique technologies in China. In order to offer the greatest value, US environmental companies exporting to China should conduct thorough market research, determining where the country lacks advanced and integrated technology to meet their greatest environmental challenges.
Exporting environmental technologies to China holds enormous potential for small and large US companies. While selling greentech products also presents some challenges, these issues can be addressed by taking a realistic approach to the Chinese business environment. By increasing US environmental exports to China, US companies will not only expand their market, but will also help raise China’s living standards.