Cleaning up in China

Mike Booker profiles a number of high-tech New Zealand companies providing some solutions to China's environmental challenges.

Massive official funding of environmental projects in China presents huge opportunities for New Zealand clean-tech companies on the one hand and significant challenges in realising them on the other. The financial risks also are in some ways even greater than for companies exporting more traditional goods and services, because of the long lead-times before investments generate revenue. This has not, however, deterred a small band of trailblazing New Zealand companies from taking up the challenge.

Some of the high-tech New Zealand companies already making headway in China’s market for solutions to environmental problems include Environmental Decontaminations Ltd, Aquaflow Bionomic Corporation, Carbonscape and Crown Research Institute, Lanzatech NZ Ltd. Environmental Decontaminations Ltd (EDL) is working towards getting a pilot land-decontamination project underway in China; Aquaflow Bionomic Corporation is investigating suitable sites for Aquaflow’s sewage to biofuel technology; Carbonscape is pursuing initial engagement around existing agricultural biomass waste streams; and LanzaTech NZ Ltd which has developed a process to produce ethanol and high-value chemicals from steel mill waste gases, and is in partnership talks with gas providers in China.

As at the end of 2009, some of these projects had only generated costs of the six figure variety, but all of them find the market-pull of China’s clean-tech programme to be irresistible. A key reason is that China has many areas that are highly polluted, but also has large budgets to do something about it. According to the US State department, China surpassed the United States as the world’s largest emitter of carbon dioxide in 2009, and 90 percent of urban water bodies in China are considered polluted. Meanwhile the World Health Organisation reports that seven of the world’s ten most polluted cities are in China.  

Environmental protection is one of ten areas targeted for investment in China’s economic stimulus package announced in November 2008. The Chinese Government is committed to reducing the intensity of its carbon dioxide emissions per unit of gross domestic product by 40 to 45 percent by 2020 compared to 2005.

New Zealand has some unique advantages in getting into this lucrative market. This country is still the only OECD country to have a free trade agreement with China and it includes provisions for environmental co-operation. The agreement is still a work in progress, but New Zealand clean-tech companies see it as having helped open doors in China.

Under the agreement, the Ministry for the Environment is working with its Chinese counterpart to show that New Zealand companies have the technology, sufficient scale and people qualified to help fix China’s environmental problems. Between them the New Zealand and Chinese governments have identified three areas of mutual interest which include:

• the elimination of persistent organic pollutants;

• biodiversity, in particular the control of invasive species, and

• water pollution, including water treatment technology for villages.

The ‘clean and green’ advantage

Another source of national advantage for New Zealand companies is our clean and green image in China, an image that resonates strongly in China. Merv Stark, a former senior trade commissioner to North Asia including China and now director of EDL, says one of the first things he did when he came on board EDL was add a ‘Clean New Zealand Technology’ strapline to the company’s name. His advice is for all Kiwi clean-tech companies interested in China is to get New Zealand included in their branding. “If you say you are from New Zealand, the Chinese will immediately give you some time.”

Aquaflow’s director Nick Gerritsen sees China as one of the world’s most strategically important clean-tech markets, thanks to its pivotal role in climate change. “[China is] so big that it can either add to the problem or take significant steps towards solving it. We believe in the latter, because the former makes no sense.”

LanzaTech, because of its capabilities in processing waste products from steel production, China is a logical choice as the country produces half the world’s steel, 95 percent of which is consumed in China. Also, things get done in China. LanzaTech’s co-founder, Sean Simpson describes the country as having a “particular drive to see things accomplished quickly and efficiently”. China is also comparatively cheap. “Building up demonstration facilities for a technology in China costs considerably less than elsewhere,” says Simpson.

But widespread publicity surrounding China’s environmental investments has increased competition internationally for business related to its clean-tech policy initiatives. Global consulting firms are touting clean-tech as one of the most promising markets – worth an estimated US$1 trillion in 2013   for investment in China. As a result, a who’s who of the international clean-tech sector is beating a path to China’s door.

Follow the cash

Clean-tech in China may have an additional layer of difficulty compared with markets offering more straight forward business opportunities. For example, some projects, EDL has found out, rely on external funding and this can lead to a long cash-sapping process to get your hands on the money. In EDL’s case they need to find more funding if they are to take part in a trial of their technology which, if successful, would get them on a list of approved clean-tech suppliers.

New Zealand Trade and Enterprise has provided some financial support and the Ministry for the Environment is supportive, but EDL is still well short of the $1 million it needs. To bridge the gap Stark has been doing the rounds of New Zealand government agencies, ministers, Chinese organisations and international ones such as the World Bank. Meanwhile EDL’s competitors, supported by generous grants from their home countries, or bodies such as the European Union, are not so constrained.

Hong-Kong-based Stark says it’s “very political” and he has had to call on all of his contacts, networks and knowledge built up during his time as a trade commissioner to get EDL to what he calls a “stalemate”. He estimates this has cost $500,000 over four years.

What strategy to adopt?

EDL has adopted a three-pronged strategy for China that is comprised of:

• working closely with the New Zealand and China governments;

• engaging with the World Bank, the United Nations Development Programme, and other global funding agencies, and

• aligning EDL with Chinese institutes to raise the profile of its technology.

Gerritsen says Aquaflow’s approach is to make progress by taking small steps. It tapped into the networks of one of its shareholders to get an introduction to a group that wanted to work in the clean-tech sector. “We are taking it slowly and carefully. “We are aware that China is likely to give rise to new business models and so keeping your mind open is a key discipline.”

- By Mike Booker

Read more:

The greening of Chinese consumers, a 2009 Action Asia Insights article

China: Effective Strategies for New Zealand Firms in China, a 2005 Asia:NZ business research report

Image 1 reproduced with the kind permission of Lanzatech.

Image 2 reproduced with the kind permission of Aquaflow.

Article uploaded: 29 January 2010