Guidance for cleantech companies in china 2020
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Guidance for cleantech companies in china 2020
- 1. Guidance for Clean-Tech Companies in China June 2020 Johnny Browaeys
- 2. Speaker Bio: Mr. Browaeys is a Belgian citizen living in China since 2003 with 26 years experience helping companies mitigate business risks in a global context. Mr. Browaeys is Director in GREENMENT, the largest Chinese owned private EHS consultancy, focusing on Big Data EHS Solutions to predict and improve business resilience in China. He also advises various companies entering or active in China with digital transformation and acts as non-executive Chairman in Seeder Clean Energy, a renewable energy solution provider. In 2009 he founded e8Resources, a Clean-Tech social enterprise reaching 25,000 people, performing 35 projects and creating 5 companies in 1,5 year. Mr. Browaeys is a regular speaker on China business topics and teaches Circular Economy at Jiaotong university in Shanghai. As the National Vice Chair of the Environmental Working Group of the European Chamber in China, he is a regular contributor to the European Chamber’s Position Paper on European business in China, contributed to the Chengdu Investment Guide and business magazines such as Eurobiz and the US Environmental Business Journal. A recent article is available online at https://www.eurobiz.com.cn/china-leapfrogging-to-a-circular-economy. Mr. Browaeys’ previous assignments include setting up the first environmental consultancy business in western China for ERM, setting up the Soil & Groundwater Remediation engineering business for CH2M Hill, coaching Chinese business leaders in transforming business culture and results in the field of environment, safety, operational excellence and sales for DuPont. Mr. Browaeys is an Executive Coach, certified by ICF, NLP practitioner, and brings a unique perspective on understanding and navigating the China Business Context. • johnny.browaeys@greenment.net • jbrowaeys@yahoo.com • WhatsApp: +32487258073 • WeChat: 13761894720 • http://www.linkedin.com/in/johnnybrowaeys Johnny Browaeys
- 3. EU-China Business Association The EU–China Business Association (EUCBA) is the EU-wide federation of national non-profit business organizations in the European Union with specialization and particular expertise in exchange of knowledge on investments and trade with China. At current, EUCBA unites 19 members in 19 countries representing more than 20,000 companies – large, medium, and small, in all branches of industry, commerce and the service sector. At current, EUCBA unites 19 members in 19 countries representing more than 20,000 companies – large medium and small, in all branches of industry, commerce and the service sector. • EUCBA supports the China business interests of its members and acts as a channel of communication with government institutions of the EU and China. • The EUCBA adds value to the work of its members by EXTENDING national work to a European level • The EUCBA aims to facilitate the exchange of information, views and experiences among its member organisations www.eucba.org – contact: gwenn.sonck@eucba.org
- 4. • Advice and expertise: the FCCC tells you about the latest economic and trade developments via various publications and a weekly newsletter. • Meetings with Chinese delegations: thanks to its extensive network the FCCC plays an important role in welcoming Chinese delegations to our country. We introduce Flemish entrepreneurs to non- traditional investment areas and help facilitate entering the Chinese market. • Exchange of experiences and sharing knowledge: the FCCC regularly organizes conferences and round-tables on China so participants can exchange experiences, facilitate collaboration and create networking opportunities. • Privileged partner: as the secretariat of the EU-China Business Association (EUCBA), the umbrella organization for all European China associations, the FCCC also plays an important role at a European level. Contact: http://www.flanders-china.be/en/about/join_fccc Flanders-China Chamber of Commerce (250 members)
- 5. Questions: Who is planning to start in China: type 1 Who is planning to grow in China: type 2
- 6. Content 1 2 3 China’s Green Economy Supporting Mechanisms Recommendations
- 7. Part 01 China’s Green Economy
- 8. 2002 2007 2012 2017 Green Economy transformation became a key priority in 2017 “Eco-Civilization” “Industrial& Urban Transformation” Preventing Financial Risks Tackling Pollution Reducing Poverty
- 9. Round 1 Round 2 Round 3 Round 4 Pilot Centrally Driven Campaigns Engaging Local Authorities Jan Feb Jul Aug Nov Dec Mar May Aug Sep 2016 2017 85,488 cases ~120 million Euro 1,173 people 13,882 governmental officers
- 10. "source: National Ministry of Ecological Environment official website" Types of Administrative penalties 2015 2016 2017 33,667 cases 2018 36,302 cases Continued daily penalties (number/billion yuan) 715 / 0.57 1,017/ 0.81 *1,046/ 1.08 *691/ 0.985 Operational halts 4,191 9,976 *16,429 *19903 Production restrictions 3,106 5,673 *7,842 *6196 Administrative detentions 2,079 4,041 ~8,600 *7145 Environmental pollution crimes 1,685 2,023 ~2,700 *2367 Administrative penalty decision ~97,000 ~124,160 ~233,000 ~166,210 Total administrative fines (billion RMB) 4.25 6.63 11.58 13.6 NOTE: * means data from January to November only New Enforcement Tools
- 11. Eg. one third of the water and two thirds of the air not yet meeting targets 4.30%, 68.10%, 22.40%, 5.30%, 2018 China Surface Water Quality Ctegory Grade I (drinking water) Grade II ~ III (light pollution) Grade IV ~ V (medium pollution) Worse than Grade V (serious pollution) 36%, 36% 64%, 64% 2018 Chinese 338 cities Air Quality Monitoring Meet AQ Requirement Not Meet AQ requirement • Majority surface water has been polluted • Main pollution source is Industrial wastewater • Most cities were not meeting the AQ standard • Pollution source include industry emissions, car emissions and coal-fired plants
- 12. Solving environmental problems balancing economy and society The transformation is problem-driven: Priority is solving pressing environment issues Conserve Energy Improve Air Quality Conserve water & improve quality The transformation aims at green innovation: Climb up value chain Establish Tech Leadership Generate value & Jobs
- 13. NDRC is coordinating ministries to develop a Green Economy framework and standards Develop Green economy frameworks & Standards 2020 Reinforce Clean Production Industrial circular economy: Green Mine, Green Exploration Industrial Waste Treatment Clean Energy: hydrogen, Marine Energy Green agriculture framework & reduction on insecticide, fertilizer, agricultural file 2021 2022 Conservation incentives for water-intensive industries clean-coal Green product purchase Green lifestyle on consumers & residents General Framework Industry & Energy conservation Agriculture Green product purchase (government, SOE and residents)
- 14. Low Slow High Intervention Speed Fast Information & Resources Data People Low High Accuracy China is using digitization and stimulus to move from compliance driven inspections to performance driven self- accountability
- 15. Red color means factory facing challenges Can be used to screen suppliers, clients, competitors… Dd Example of environmental data available online in China real- time
- 16. Green Manufacturing linked to Environmental and Social Credit Scoring
- 17. Part 02 Supporting Mechanisms
- 18. Energy & resource input Infrastructure Production process Products Environm. emission Basic requirements Management system Environmental performance Green Manufacturing System: via a green supply chain to a Green Economy Rules for Green Factory Evaluation（GB/T 36132-2018） 1 2 3 4 5 6 7
- 19. Management system Infrastructure Products Environmental emission 1 Basic requirements 1. Compliance and related party requirements 2. Top management requirements 3. Factory requirements 3 2 Energy & resource input 1. Energy inputs 2. Resource investment 3. Purchase 1. Quality management system 2. Occupational Health and Safety Management System 3. Environmental management system 4. Energy management system 4 1. Ecological design 2. Use of hazardous substances 3. Energy saving 4. Carbon reduction 5. Recyclability rate 5 1. Air pollutants 2. Water pollutants 3. Solid contaminants 4. Noise 5. Greenhouse gases 6 1. Building 2. Lighting 3. Dedicated equipment 4. Universal equipment 5. Metering equipment 6. Contaminant treatment equipment and facilities 7 Environmental performance 1. Land intensive 2. Innocuous raw materials 3. Cleaner production 4. Waste recycling 5. Low-carbon energy Evaluation indices for green factories
- 20. NDRC in 2019 listed 6 key industries for Green Economy transformation Energy Conservation Clean Production Clean Energy Eco-industry Green Infrastructure Green Services Energy Conservation equipment Pollution control equipment Recycling equipment EVs and Green ship Energy conservation upgrade Industrial park upgrading Non-toxic material Treatment of exhaust emission Treatment of wastewater Renewable energy equipment Construction & operation of renewable energy facilities Efficiency improvement of traditional energy Ecological Agriculture Ecology-protection Ecology restoration Green buildings Green traffic Sponge cities Garden & Landscape services Green Consultancy Green projects management Monitoring & Testing Services Green Product certification
- 21. Government support includes Tax benefit, Fiscal Subsidy, and Financial Support Tax benefit • Applicable for green product, comprehensive resource utilization, and waste recycling services • VAT Refund: 100%, 70% or 50% depending on the business activities • Income Tax for new companies: 3 years exemption, 3 years half rate (12.5%) • Preferred Income Tax: 15% • Tax credit: 10% credit for green investment • Tariff exemption: import of critical equipment, spares or raw materials • Other benefits: tax discount (15% off), accelerated depreciation Fiscal Subsidy • National & Provincial level subsidies available to • Support: new enterprises, R&D, Technology commercialization • Provincial subsidy examples: – Jinan: Green building zone, up to￥20m/year R&D subsidy for 3 years to Tech-leading enterprises, up to ￥2m subsidy for qualified green buildings, ￥10m to ￥100m subsidy for entrepreneurs with successful commercialized tech – Shanghai: 30% subsidy for circular economy investment, up to ￥10million per project Financial Support • Green bond: aligned with international Green Bond standards, attract more Int’l investment • Including green bond, green loan in MPA to incentivise creditors’ investment on green bond • Set-up Green Development Fund to lead and improve the policy support • Substantial increase of Green Bond issuing from 2016 to 2020 • Province government subsidy to green bond issuers: Jiangsu subsidize up to 30% bond interest
- 23. Clean-tech lifecycle: which sectors expect fast growth in the next 5 years? INTRODUCTION GROWTH MATURITY DECLINE Lifecycle Rural Water Environment Soil Restoration Organic Solid Waste Non-Electric Air pollution Waterbody Restoration Sanitation Industry wastewater treatment Hazardous waste Municipal wastewater treatment Environment monitoring Incineration Municipal water supply Sanitary Fill Power Air pollution Deloitte 2020年环保行业白皮书： https://www2.deloitte.com/content/dam/Deloitte/cn/Documents/energy-resources/deloitte-cn-eri-environment-protection-whitepaper-zh-200421.pdf Most sectors are included in the “Encouraged Import Catalogue” of Ministry of Commerce or “Catalogue of Encouraged Industries for Foreign Investment”` of NDRC last year
- 24. Fiscal Support • Governments provide fiscal support, financial support and tax benefits to Green innovative companies • . Influence on standards • Possibility to advise and influence setting standards • Foreign invested companies enjoy the same treatment in setting standards Early mover advantage • Blue ocean and vast market • First mover could establish network and brand Green Consultant • Companies who provide Green strategies consulting services • Companies who certified other companies as Green Compliant Green Company Enabler • Companies who provide equipment or services to upgrade existing players to be Green compliant Opportunities for foreign clean-tech companies entering China now Three types of companies will possibly thrill Green Product Supplier • Companies certified as green supplier and provide green products to other companies
- 25. Good to know: Example of data accessible via specialized companies
- 26. VC/PE •ECO Fund •Talent Capital (Pre-IPO) •KPCB China •China Impact Ventures •Green Pine Capital Partners •U.S. China Green Fund •Tsing Capital Greentech Incubators & Accelerators •Young Green Tech •TusStar •PowerLab Example: Tsing Capital Founded by “China’s 1st Cleantech Investor”, Dong Ye. “Doing Well by Doing Good©” Tsing Capital Portfolio Categories: Energy Efficiency, Clean Energy, New Energy Vehicles, Sustainable Agriculture, New Material, ect. • Energy and recourses Technology e.g. renewable energy, smart grid, energy storage • Environmental Technology e.g. air purification, solid waste treatment, Carbon captures • New Material e.g. bio-degradable material, biosynthetic material • Intelligent technology e.g. AI, big data, 3D printing, augmented reality* Foundations •China Green Energy Development Foundation •Paradise Foundation •China Environment Fund Invested Company Case: GreenBio Bio-degradable PHA material manufacturer Funding Amount: non-available Upholds the triple bottom line in investment decisions: Social, Environmental and Financial Good to know: Cleantech Funding Sources Ecosystem www.gc-insights.com & www.chinaesg.org
- 27. Important: protect your business using the “Two-Step Approach” What you need to know before entering China Wrong Set up and manage from a western perspective ("One Step" Approach) Right Set up, combine China Best Practices with western perspective ('Two- Step Approach) Site Excellence instead of Paper Excellence Reverse Budgetting Middle Management Accountability Workfloor Engagement HQ draws from indigenous innovation Chinese Solution Selling Cross- regional leverage Local competitor hires your technical and sales staff and is more cost- efficient Local regulator sets local requirements Local competitor innovates Game Over Cross- value chain leverage
- 29. Special thanks to: • Dr. Liu, Liu Yang, Xu JianQiao, Greenment • P. Corne, Dorsey and Whitney LLP and European Chamber • D. Hui, Greif • Zhang Yu, INSEAD • He Yiwen, GC Insights • L. Xu, Beyond Consulting • Adrian Cahill, Executive Coach • Gwenn Sonck, Executive Director, EU-China Business Association and Flanders-China Chamber of Commerce • anyone else I forgot to mention Valuable reading: • https://www.eurobiz.com.cn/china-leapfrogging-to-a-circular-economy - on China’s circular economy • https://www.europeanchamber.com.cn/en/publications-corporate-social-credit-system - on China Social Credit scoring • https://ec.europa.eu/commission/presscorner/detail/en/fs_20_425 - on Europe’s green and digital strategy Add my LinkedIn for updates: http://www.linkedin.com/in/johnnybrowaeys Contact me in case of questions or need for help: WhatsApp: +32487258073 & WeChat: 13761894720
Editor's Notes
- Good morning everyone. First of all I would like to thank Gwenn Sonck, the EU-China Business Association, the Flanders-China Chamber of Commerce, and last but not least, POM Oost-Vlaanderen, for the opportunity to share some information with companies in Belgium.
- I have been in China 17 years, worked in startups, SME’s, Fortune 500 global corporations, both foreign and Chinese companies, both in the private and government sector. These days I hold various roles, supporting several companies working in or with China.
- Before we start, I would like to ask you to go into the chat box here in the webinar, and in there write the number 1 in case you plan to start in China the number or 2 in case you plan to grow in China, so I can get an idea of what kind of needs the audience has.
- These are the 3 topics of today
- China’s development is driven centrally by the Chinese government by means of 5-year plans. They have no elections like we know so every next 5 years build on the previous 5 years. In 2007 social stability was the main topic, and environment was part of that for the first time, because the authorities realised that a clean environment was part of what a happy society expects. China started systematically collecting information throughout the country on the environmental status of surface waters, air, soil, etc. As became clear that the environment was in dire condition, the focus of the next 5-year plan in 2012 was put on environmental impact. China started systematically mapping the impact of industry and cities on the environment, to understand what had led to the poor environmental conditions. In 2017, as became clear that the environmental issue had become critical, Xi JinPing stepped up and included environmental enforcement as one of the 3 Critical Battles against “Financial Risks”, “Poverty” and “Pollution”. In 2018 China as a country changed its National Constitution aiming to become an “eco-civilisation”. These days, both Europe with its Green Deal and China with its eco-civilisation share exactly the same long term 2050 goals of: “green, digital and competitive”.
- After this shift, the central government started systematic campaigns all over the country, punishing not only factories but also local governments if they had environmental issues.
- Instead of issuing small fines, the local authorities were authorized to reduce or stop production of polluting companies. Many companies were hit by these enforcements.
- But still a lot of work needs to be done. This 2018 diagram shows the national figures for surface water and air quality, one to two third were not yet meeting the quality targets.
- China’s approach to environmental governance is a very pragmatical one: focus is on solving the biggest, acute problems first, and using the context to drive industrial transformation, and in this way, effectively climbing up the business value chain, aiming for tech leadership, but also generating value for society.
- The National Development and Reform Commission is currently developing a green economy framework, covering industry, agriculture and society, aimed to be ready by 2022.
- You probably have seen during Covid how China leveraged their data collection ability to control virus spreading amongst the people. The same ability and principles now are being used to collect factories environmental data via various sources. Covid even has accelerated this process. On March 22nd, China's State Council’s introduced measures including mass entrepreneurship and innovation, service improvement through Internet Plus initiatives, aiming to build a digital business ecosystem connecting state-owned and private enterprises, universities and R&D centra, and to support this digital business ecosystem in a more systemic way via services leveraging China’s big data and AI. https://www.youtube.com/watch?v=rmcnoSetVIA&feature=youtu.be
- Here is an example. This portal shows individual factories in China, each with a colour representing its risk profile. Red in this case means there is an immediate risk for interruption in the production because of environmental problems, industrial upgrading, urban planning, or incidents, complaints or lawsuits. This portal is real-time, colours of individual factories change if their situation changes. The system is also able to look into the future as it considers both present and future factors.
- Last year the authorities moved from a system using inspections to push factories to comply with environmental regulations to a system incentivising factories for improving their environmental performance. Just like every citizen in China has a QR code to see if they are infected by the virus or not, factories all now have an environmental credit score, which by the end of this year will be linked to the national social credit scoring system. The result is going to be that over a relatively short period of time the best green manufacturing companies in China will start prevailing and taking over the market.
- Next, if you are a Clean-Tech company and want to come or grow in China, which kind of support can you enjoy?
- This is the model for a green factory. Green factories get extra benefits in the performance monitoring system. This is important for Clean-Tech companies because factories that want to become certified as a green factory, will need clean-tech upgrades, which means they are your potential clients.
- Here are some of the detailed aspects factories need to upgrade or comply with respect of being green.
- The 6 green industries which were selected as the most important and that get most support, are: energy conservation, clean production, clean energy, eco-industry, green infrastructure and green services. Now, I want to note that green economy is not the only one that is being systematically upgraded in this way, you can find similar programs to upgrade agricultural, food and health industry etc.
- This is one of the most important slides of this deck. You can see that for the target industries, there are various forms of tax benefits. Some of these can be valuable for you as Clean-Tech company if you are setting up or expanding in China and are “negotiable” at the local level. Different governments compete, so do your homework and negotiate well. Subsidies can be substantial, eg. a few of the companies I am working with have gotten the 20 million RMB subsidies for setting up in dedicated R&D zones. Local government officials need to meet certain criteria such as getting x companies or y people with R&D profile in their zone, or registering z patents, etc. This helps them to get their industrial park to be approved as dedicated R&D zone, which brings many benefits to them, and also avoids them from being promoted to a less interesting part of the country. Various structures are possible such as investing in shares, JVs, or simple business cooperation. IP protection measures to keep the IP with the foreign company and even outside of China are accepted. The key for those zones is not so much getting the specific foreign companies and their knowledge, but the creation of an R&D services ecosystem to serve local companies in their development. One of my clients asked me if I know a company which develops or uses monitoring equipment to measure milk quality in line. If anyone here knows such a company, please ask them to contact me. Other examples of companies I know getting this support are in the field of agriculture, food, and healthcare. Green bonds are also an important development as China’s green bond market already is the second largest in the world and just last week China’s government announced to start aligning its national standards with international standards, we can expect more global confidence and acceleration of this system. This means more financial means will flow to companies to upgrade. Why is this important? It means that your potential clients will get financial incentives to upgrade their operations, which means more demand for Clean-Tech. And, as discussed before, you can use the online available information to find out where are companies under pressure or companies with access to finances, and with potential need for Clean-Tech.
- Ok, let’s go to the final part of this presentation
- As you can see in this figure, hazardous waste, industrial wastewater, but also organic solid waste etc. are in full growth. Plastics for example are a major point of attention now, and my friend Jet Chang who will speak here in a few minutes, is a Subject Matter Expert in this field. The catalogues of encouraged investment and import are a good guidance where foreign companies are welcomed. The sectors I miss in this figure are recycling and reuse of materials.
- Should you consider China? Well, China is no longer the same as a few years ago. A lot of state-of-the-art technology already is present in China, sometimes even more developed than in Europe or the US. The first thing to do is to check how unique and valuable your solution or product REALLY is compared to what already exists in the market. If you are a leading company in your field, then you will, via the Green Manufacturing System and the R&D Tech zones, have the ability to help set the standard for your industry and get fiscal support. Companies that produce green products or Clean-Tech companies that enable other companies in China to become greener, or consultants that provide strategic green advice, all will have their attraction.
- I already mentioned the data a few times and can’t stress this enough. China may look very opaque from the outside, but has an enormous data collection system, and those data are mostly accessible by a few specialized companies. This slide shows a few examples of such databanks. One of my clients for example suddenly started losing his bids to the local competition at a cost lower than his production cost and couldn’t understand how this was. possible. Data research revealed that his local competition had found alternative suppliers at a cost 30% lower than his.
- If you are a smaller company, you may also consider. Clean-Tech funding, which still is available in multiple formats in China, as shown in this slide from GC Insights.
- And last-but-not-least: in Rome do BETTER than Romans do, but don’t act as a barbarian who comes from outside and has no affinity with the local culture. Chinese people and Chinese culture ARE different. It not only takes time to learn but also takes time to develop solid relationships. Western relations are like 2 peaches coming together, the outside is soft and there quickly is overlap, trust, but the stone is small and the ability to leverage upon each other, as being part of the same business ecosystem, is limited. Chinese relations are like coconuts, very hard on the outside and hard to penetrate at the start, but once the connection is made, the liquid can totally mix, which allows for a very dynamic interaction between different parties within a business ecosystem. Over the years I learned that a “Two-Step” Approach, which combines China best practices with a western perspective is what works best in order to have a long-term sustainable business in or with China. Contact me if you want to learn more about the Two Steps.
- So, what did we learn in this quick speed-course: China is transforming to a green circular economy Their aim is both problem-solving and competitive innovation Six economical green categories get financial & fiscal support A lot of data is available that can help to identify your market and your clients Use a 2-Step Approach to protect your business
- This last slide includes some acknowledgements and additional sources worth reading. Thanks for your attention. Feel free to connect with me on LinkedIn or to reach out to me if you feel I can help you.