China needs you

Financing the development of China's green economy may require nearly $6 trillion by 2030. Jenny Blinch explores.

A report put out in August by global body The Climate Group focuses on what it terms the “increasingly central role played by China in solving the climate change challenge”.

However, it also highlights the two biggest hurdles standing in the way of China’s continuing development in this area as “technology gaps” and “an external financing deficit”. As for the latter, it cited McKinsey research estimating that financing China’s green economy might require RMB40 trillion ($5.8 trillion; €4 trillion) by 2030 – or an annual investment of RMB1.8 trillion.

Accordingly, cleantech, and clean energy in particular, is one area where the government is prepared to relax its frequently stringent surveillance on foreign investment – as is widely acknowledged by GPs investing in this sector.

“The Chinese government will meddle in private equity, and in the oil and gas sectors,” said one Hong Kong-based cleantech investor, “but it has not yet meddled in clean energy.”

One reason for this is that venture capital and private equity investors in clean energy – and in cleantech more generally – tend to take minority stakes, which don’t attract as much attention from the government as majority and control stakes. But the fundamental reason is simply, as The Climate Group’s report amply illustrates, the seriousness of purpose behind the Chinese government’s cleantech endeavours.

That it has swung firmly behind the cleantech story is evidenced by the passing of multiple laws, including 2006’s China Renewable Energy Law, and also by the large chunk of capital dedicated to the sector in its November 2008 stimulus package. Further evidence can be found in the great strides already taken by the government – for example, by 2010 it is estimated its top 10 energy conservation projects will save as much as 240 million tons of coal equivalent.

In adopting clean tech so wholeheartedly, China is not bowing to external pressures, but instead responding to pressing internal drivers. One such driver concerns the automobile industry: based on current trends, China’s car use will triple to 150 million by 2020, accounting for 20 percent of global CO2 emissions.

Rather than hold back progress, China must find a way to marry its growth ambitions with sustainability, hence its push to be a frontrunner in the global development and manufacture of electric-powered vehicles.

But what is clear is it cannot do all this alone. Cleantech investors: China needs you.