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China – The Challenge of Growth and Green

Vince Cunningham11 November 2010

www.cbbc.org

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Agenda

•Introduction to CBBC•China’s development – growth vs green•China - the situation now•Realising the opportunity – UK companies•Case study – selling green to China•Conclusions

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Who are CBBC?

•Over 50 year history•130 staff, 11 locations in China, 7 offices in UK •Deliver UK government services•Independent Organisation providing support and services to members•Over 800 corporate members

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Who are CBBC?

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Who are CBBC?

•Advice, research•Company formation, recruitment •Company registration check•“Launchpad” incubator•Information • network • office access & hot desking•All sectors, all businesses/organisations

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China’s Development

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China’s Development

Milestones• 1978 – opening up policy• 1989 – Tiananmen Square• Mid 1990s – opening up and FDI

accelerates• 2001 – China joins WTO• 2008 – Recession – fiscal

stimulus policy

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China Today

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•Urbanisation•Development / rural balance

•Energy•Water•Atmosphere•Solid Waste•Sustainability

China Today

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It’s easier for the UK:

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It’s easier for the UK:• Smaller• Offshored a lot of manufacturing

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It’s easier for the UK:• Smaller• Offshored a lot of manufacturing

But:• Combination of legislation

& industry response• One step at a time• There is a cost – but also a cost if

we don’t

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•Energy / low carbon•Water•Atmosphere•Solid waste management•This all means…………

China - The Situation Now

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Energy / Low CarbonCurrent Situation:

• China passes US in CO2 production

• World’s largest emitter of SO2

• Issue has been keeping up with growth – brownouts and blackouts

• Priority has been growth• Increasing affluence drives

consumption• Heavy dependence on coal (75%)

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Energy / Low Carbon

But:• China = 20% of US per capita

energy consumption

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Energy – 11th 5 year Plan

• Reduce CO2 output by 20%

• Invest in power station optimisation

• Improve energy efficiency of heavy industry

• Improved building and equipment design

• Increased investment and development of renewables

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Energy – 11th 5 year Plan

• Result – patchy at best

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Energy – 2020 Outlook

Objective – cut greenhouse gas by 40-45% per unit of GDP compared to 2005

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Energy – 2020 Outlook2005 2020

Coal 75 )

Oil 13 ) 75-80

Natural Gas 3 )

Renewable 8 15-20 (solar, hydro, wind)

Nuclear <1 >5

100% 100%

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Coal

•Will continue to be the major source of energy

•Gasification & Carbon sequestration – various initiatives – UK/China £10M JV

•Power station optimisation – several projects – some UK involvement

•Most obvious area for substantial gains

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Nuclear

• Nuclear power stations to increase from 11 – 35 by 2020.

• Output up by a factor of 6

• Chinese / French / Russian technology

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Wind• 2 GW to 135 GW

(2005-2020)• Onshore advanced,

offshore lagging• Several UK

companies involved

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Hydro-electric• 117 GW to 300

GW (2005 to 2020)

• Principally Western China

• Largest project 3 Gorges Dam

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Energy - Other• Active solar / photovoltaic

programmes• Biofuels – limited• Programmes for geothermal,

biomass, hybrid / electric transport etc etc

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Electric transport

• New Maglev trains in Chengdu will approach 500 km/hr – with less energy consumption than a family car

• 10,000 electric buseslead to 500 new jobs in UK North East

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Energy - Other• Energy efficiency an issue – eg

2004 building codes require 50% increase in energy efficiency - but 95% of new build does not comply.

• 40M hectares of new forest by 2020

= 3 X

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Water• 90% of fresh water polluted• 75% of Chinese cites experience

water shortages• 32% of hazardous waste water

treated

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Water

• Major projects – largest - N-S water diversion – 45B M3 pa – cost $62B US

• Waste water treatment plants for 300 cities – cost $20B US

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Atmospheric Pollution

• Under 1% of city dwellers breathe air that meets EU standards

• Linked to economic output and affluence (2010 worse than 2009)

• Increasing rigour in enforcing environmental standards on new investment

• Periodic restrictions

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Solid Waste Management• Situation very variable – cities

can be efficient – rural very little control

• Priority is recycling

• Hazardous waste can be an issue

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This all means….

• China has huge issues in all environmental areas

• Environment has not been a priority – until recently

• Policy makers recognise this – China at large catching up

• Leads to a need for foreign technology in almost all environmental fields

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This all means….

• Growing concept of “sustainability”eg UK/China initiative in Wuhan, Chongqing and Changsha

• Opportunities for foreign companies with expertise in all sectors

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Realising the Opportunity – Foreign companies• Needs market research and clarity

of USP (Unique Sales Proposition)

• May need development of contacts at multiple levels

• Contract likely to be technology transfer

• Recognise the probable need to “localise”

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Maglev Trains - Mini case study (technology transfer in action)• Technology from Germany• First commercial application in

Shanghai• Much of equipment imported• Second commercial application in

Chengdu• 10% speed increase, 30% reduction in

train cost through local manufacture

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Realising the Opportunity – Foreign companies• Contracts can be

complex

• Process – relative positions change with time

• IP – adaptation / erosion

• Renegotiation

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Realising the Opportunity – Foreign companies

“Shy bairns get nowt!”

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Realising the Opportunity – Foreign companies

“Shy bairns get nowt!”

(in large families children who were shy got nothing to eat!)

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Selling Green to ChinaCase Study – Compak Systems

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Selling Green to ChinaCase Study – Compak Systems• Produces panel boards• Uses waste agricultural fibre• Non-carcinogenic resin• “Local” factory scale - 12,000

te/a

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Selling Green to ChinaCase Study – Compak Systems

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Selling Green to ChinaCase Study – Compak Systems• Time to first sale – 11 years from

first contact (Note!!! This is an extreme!!!)

• Sale was technology transfer – limited equipment

• Project required extensive support

• IP - Localisation had an effect- Divide and protect policy

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Selling Green to ChinaCase Study – Compak Systems

Core technologies – press, resin mixing

Core technologiesHigh IP risk

Use several suppliers from outside of the industry

Standard technologies – sawing, sanding, dust extraction

Standard technologies – Low IP risk

Buy from local specialist suppliers

Protecting the intellectual property

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Selling Green to ChinaCase Study – Compak Systems• Contract involved royalties,

management fees, equipment, eventually a JV

• Contract was renegotiated after first sale

• UK involvement was vital in obtaining further sales(4 plants in China)

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Conclusions• Growth has taken priority over

environment in China – until recently

• Changing government policy, commercial and individual awareness

• Opportunities in every sector• Opportunity is likely to come in

technology and know-how transfer• Need USP, patience, staying power

to enter and stay in market vince.cunningham@cbbc.org

www.cbbc.org