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Business
Print Edition> Business
UPDATED: May 7, 2012 NO.19 MAY 10, 2012
Making Green Money
Diversified investment structure drives the development of China's environmental protection industry
By Liu Xinlian
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CLEAN MISSION: A worker inspects a sewage treatment factory in Bayan Nur, Inner Mongolia Autonomous Region (ZHANG LING)

Since its first biomass power plant was launched in 2006 in Shanxian County of Shandong Province, China National Bio Energy Co. Ltd. (NBE) has built 26 additional facilities. Ten more are under construction.

Despite the fact that today NBE is the only company in the world to incorporate the entire biomass energy production chain, from equipment manufacturing to power plant operation to providing a whole range of proprietary technology, a lack of capital has haunted Kai Johan Jiang, Chairman of NBE.

"Biomass energy is a totally new industry in China and we still cannot produce ideal financial numbers. Getting bank loans is still pretty difficult," he said.

Green companies in China, especially privately owned ones, are facing increased difficulties in gaining support from capital markets.

While China's environmental protection industry is becoming a hotspot of investment, financing difficulties continue to plague the green sector, according to a research report issued by CCID Consulting, China's largest research, consulting and IT outsourcing service company.

The Report on the Investment and M&A in China's Environmental Protection Industry released on April 18 said the long investment cycle, slow return and high technological content standard have made it even more difficult for enterprises in the industry to obtain financing.

Despite the fact the government has been the major sponsor of environmental protection projects, social capital is still needed to fill the huge financing gap in the country's green ambition. This will require full utilization of market mechanisms, a diversified investment structure and complete government support.

Golden period

China's Central Government released in December 2011 a work plan for environmental protection in the 12th Five-Year Plan (2011-15).

Over the five years, China plans to carry out eight environmental protection projects and launch a series of environmental surveys and pilot programs.

It is estimated that industries related to environmental protection in China will achieve an output value of more than 10 trillion yuan ($1.54 trillion) from 2011 to 2015. The multiplier effect from this emerging sector is estimated to be eight to 10 times larger than other industry sectors.

A white paper on environmental protection released by CCID Consulting in November last year pointed out that China's environmental protection industry is entering a golden period of development and the general layout has taken initial shape.

The white paper also unveiled investment opportunities. The environmental protection industry is undergoing a wave of growth, but the development speeds and maturation periods of different divisions are different: The solid waste treatment industry is growing in general; the development of the sewage treatment industry is lagging behind the urban water supply system; the growth potential of the de-nitration sub-industry in the air pollution control industry is greater; the de-sulfurization industry in power plants is mature; the de-sulfurization market (such as steel industry) beyond power plant has yet to be initiated.

China will introduce favorable tax and financial policies to support its green economy during the 12th Five-Year Plan period. A strong "green" policy is essential if China wants to maintain its rapid and sustainable growth. "China will build a good fund-raising environment for companies to develop green technologies by establishing green technology investment and related equity funds," said Wang Yuqing, Deputy Director of the Committee of Population, Resources and Environment of the National Committee of the Chinese People's Political Consultative Conference.

Currently, many provinces and municipalities are formulating development plans for the environmental protection industry, establishing special industrial parks and developing policies to streamline the management mechanism of the industry.

Financing difficulties

A survey conducted by Hebei Environment Protection Industry Association showed that 62 percent of clean enterprises in north China's Hebei Province have annual profits below 1 million yuan ($158,730); 65 percent of environment technology research enterprises have annual income below 100,000 yuan ($15,873).

According to Zou Ji, Vice Dean of the School of Environment and Natural Resources with Renmin University of China, most of China's manufacturers and service providers in the industry are small and face financing difficulties.

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