Clean tech ventures find a warm reception in China
For American cleantech companies, there's just one country that matters most: China. After years of massive growth that took a heavy toll on the environment and natural resources, China now has an ambitious plan to tackle its energy needs by developing clean energy alternatives. Still, for so-called "cleantech" companies, accessing the market and setting up shop there is no easy task.
That's where Fred Chang comes in. A senior China advisor to Cleantech Group, a San Francisco-based consulting group, as well as a long-time investor in Asia's cleantech industry, Chang compares himself to the Sherpa, a Tibetan tribe that helps foreign mountaineers conquer Everest. With the right partners, Chang said, the rewards for foreign cleantech companies in China are big.
According to a report by Bloomberg New Energy Finance, new clean energy investment in China has surged in the second and third quarter this year, surpassing the U.S. by $7.9 and $7.5 billion respectively.
"The Chinese public is not criticizing the government for supporting cleantech companies; they're encouraging it to do more," Chang said. The Obama administration has been under fire for some high profile failures of federally supported cleantech ventures, such as solar company Solyndra and car battery maker A123.
In its recent five-year plan, China aims to cut its carbon dioxide emission per unit of GDP by 17% by 2015. The plan also has a focus on the development of what some observers call the "new magic seven," namely seven "emerging strategic industries", including biotechnology, high-end manufacturing and new energy, which are deemed to be the driver of China's future growth.
"The government knows it's (environmental) problems, and the policies are clear and consistent," Chang said. "It won't be like in the U.S, where the Congress has to renew some programs every few years."
For the last two years, Chang's firm has helped American cleantech companies come to China by providing week-long tours aimed to help entrepreneurs build contacts, learn about the business landscape and find investments.
"China is a market where there's a desire to move fast," because of its urgent sustainability issues, said Richard Youngman, Europe and Asia managing director of Cleantech Group. "But there's a tech gap between what's available locally and what they want to achieve." And that's the gap the Cleantech Group hopes to bridge.
"It's the most efficient business trip I've been on," said Frank Magnotti, one of the eight CEOs (three of whom are from Europe, five are from the U.S.) that took the tour last month. His New Jersey-based company, Fluitec, develops technology to monitor and control the quality of lubricants in rotating machinery, which are widely used in power plants, wind mills and steel refineries. Fluitec already has an office in China, but its main customers are foreign enterprises operating there. "As an entry point, it's easier, but you can't just rely on foreign companies," Magnotti said, adding that during the trip, the group met with lawyers and accountants, who helped him understand more about doing business in China. He also met with potential customers and interested investors.
Atmosphere Recovery is another company that looks to grow their existing operation in China. The Minnesota-based venture builds gas analyzer systems to help industrial companies become more energy efficient.
Ronald Rich, president of Atmosphere Recovery, said that the biggest challenge the company faces is that the demand for their products has outpaced their production capacity. "We don't actively market anymore," Rich said. "Sinopec (China's largest oil company) said they would buy 75 a year, we make 5 a month."
Rich said he didn't expect the market to be so big when he first entered China in 2006; but last year, the company sold nearly half of its equipment there. Now he hopes to quadruple the company's production capacity, as he begins to tap into the Chinese oil and gas industry, which apparently is more willing to try new technologies than its American counterpart. "U.S. companies just don't take risk like that," Rich said, as they're enjoying historic prosperity and thus have no incentives to invest in technology upgrades.
Another challenge for Atmosphere Recovery is the lack of good financing options in the U.S., said Rich. "Most of the cleantech investment in mid 2000s didn't pay out the way the venture capitalists hoped they would," he said, explaining why he finds investing deals today less attractive. While still preferring an American investor, Rich said he'd be happy to team up with a Chinese one if the offer suits.
According to a report by Ernst and Young, public cleantech companies around the world have witnessed a 41 percent drop in market capitalization and a 229% decline in net income this year. In a Deloitte survey of 440 venture capitalists globally, those from the U.S. had shown the least confidence in cleantech investment.
"There's a cooling down of private and public capital in the U.S. (that's available to the industry)," Youngman of Cleantech Group said. "There're more and more western cleantech companies who are finding life quite hard."
"Whenever there's a chain break between capital and technology innovation on the market, the government has to be the first angel," said Wan Gang, secretary of China's Ministry of Science and Technology in a speech in 2010, affirming the government's support for those industries.
"It's not just some political movement; it makes economic sense for corporations too, because they have to compete on tech solutions to make money," said Chang. "All those things are the opposite of what's going on elsewhere in the world that makes it welcoming for foreign companies to come to China."
(The author is a Reuters contributor)