Transcript Cleantech-- China and the US Comparison, competition, cooperation Erb Institute for Global Sustainable Enterprise December 10, 2010 Ken DeWoskin.

Cleantech-- China and the US
Comparison, competition, cooperation
Erb Institute for Global Sustainable Enterprise
December 10, 2010
Ken DeWoskin
Agenda
• China’s challenges
• China launches the next five year plan
• China Green growth overview
• Some U.S.- China system features
• Synergies– U.S. and China
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China seeks a leadership role in most Cleantech sectors
Solar Thermal
Wind Power
Photo Voltaics
Hydro Power
Clean Tech & Renewable
Energy Technology Segments
Solid Biomass
Efficient Mobility
Bio Fuels
Bio Gas
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Waste Recycling
Energy Efficiency
Sustainable Materials
CO2 Reduction
Geo Thermal
Water Treatment
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China, India and the U.S. — green giants
• China, U.S., and India together represent
42.6percent of the total power generated in
the world (International Energy Agency 2009)
Sun radiation on the earth
‒ China — 3,279 TWh (16.6percent)
‒ U.S. — 4,323 TWh (21.9percent)
‒ India — 803 TWh (4.1percent)
• The Indian and U.S. models are primarily
reliant on private industry with incentivizing
regulations
• China is primarily reliant on a strong industrial
policy and direct investment from central and
local government sources
• China and India have world-leading targets
for renewable and to date have focused on
wind power over solar
• Both China and India have major PV module
manufacturing capacity and export far more
than they install domestically. Both markets
are intensely competitive in manufacturing
Source: Solar Millennium AG, Erlangen
Very good
Good
Satisfactory
Annual Solar Energy Yield (KWh/KWp)
Source: Mckinsey report quoted in Mint/MNES
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Not satisfactory
Market and policy imbalances and balance points are
delicate and intertwined
Steps
Benefits
Curtail asset bubbles
Affordable housing
Moderate inflation
Avoid trade strife
Support target growth
Meet social obligations
Harmonious society
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Raise interest rates
Not raise interest rates
Appreciate RMB
Not Appreciate RMB
Continue stimulus
Discontinue stimulus
Add property tax
Not add property tax
Encourage wage increase
Discourage wage increase
Risks
Overslow growth
Impede export growth
Drive asset bubbles
Drive inflation
Increase trade disputes
Crash property markets
Foment social unrest
©2010 Deloitte LLP. All rights reserved.
China’s growth model has demanded large amounts of
investment capital growing very quickly
Bn RMB
CAGR
40000
40%
35000
35%
30000
30%
76%
25%
25000
67%
20%
20000
55%
15000
15%
56%
52%
10000
5000 37%
0
2000
34%
2001
36%
2002
41%
2003
FAI CAGR
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44%
2004
FAI
10%
48%
5%
2005
GDP-FAI
2006
2007
2008
2009
2010
FAI/GDP
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Enter the era of “Inclusive Growth”
This month China approved a new five-year blueprint for economic and social
development, in which the ruling Communist Party of China promises to further
improve people's livelihood and "vigorous yet steady" efforts.
Princelings
Xi Jinping
Li Yuanchao
Zheng Qingli
Zhang Youxia
Yang Yuanyuan
Liu Yuan
Wang Yi
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In various venues, a consistent public agenda has been
promoted
Stated Leadership Priorities
Li Keqiang – Report to The Party School, Feb 2010 – China’s top 10 challenges
1.
Moving to a more sustainable growth model
2.
Boosting consumption to reduce dependence on
exports and fixed asset investment
3.
Shifting industry up the value-added chain
4.
Reducing widening wealth disparities
5.
Checking rampant environmental degradation
6.
Reigning in corruption
7.
Strengthening agriculture
8.
Sustaining employment
9.
Increasing energy efficiency
Li is known to have
advocated much more
stringent property
controls and more
aggressive structural
reform since early this
year.
10. Coping with chronic water shortages
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How the planners plan to make the plan work
To preserve the interests of the State while maintaining impressive growth
rates at an increasingly large scale in an increasingly challenging environment
• Grow demand for steel, energy, cement, and aluminum by mandating/funding
low-income housing units, transport, and energy-efficient industrial upgrades
• Diversify sources/types of commercial financing, via moderate liberalization of
interest rates and liberalization of financial activities for non-bank investors
• Project the Renminbi into a broader international role
• Secure supply and price control of key commodities for the central government
• Sustain a continuing net contribution of exports to national growth by reducing
the value added in imports and raising China’s value-added portion of export
products.
• Diversify destination markets, particularly to Africa and the Mideast, where
national strategic goals blend with markets that are comparatively easy to
access
• Stimulate domestic consumption via direct consumer subsidies, moderately
accelerated wage growth, low prices, and logistic efficiencies
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What keeps the planners awake at night?
• Domestic risks such as inflation, asset bubbles, and mis-allocation of
resources may be difficult to manage
• External risks, such as trade disputes, WTO actions, currency wars, and
other protectionist actions could take a toll
• Additional stimulus will be used in 2010/11, making withdrawal of
stimulus more difficult and return to market-reforms challenging
• Large Chinese enterprises will gain strength domestically but remain
challenged to create any footprint outside China
• Enterprise control weaknesses, systemic corruption, and compromised
reporting standards contribute to inefficiency, investor doubts, and market
volatility
•Worsening mal-distribution of wealth/resources
•Demographic dividend is gone, and increasing dependency ratios with
weak social infrastructure investment will strain household resources
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Following the money–
looking at three sensitive contradictions
1. The shift to domestic consumption– the actual measures of the FYP are very
weak, with no proposed increase in distribution of national wealth to households.
While subsidies currently drive about 25% or many major consumer purchases, they
support products with lowest margins, and they have failed in the past (cellphones in
1998-99). Shift to household consumption will take longer and depend on
demographics– dependency ratios and older work force with higher wages.
2. The economy is continuing to privatize-- industries such as steel and mining
are examples of a strong recentralization effort that lurks behind much of the FYP
policy directions. The coal resources of Shanxi were dramatically returned to the
control of large government enterprises like Poly Holdings, CITIC and Shenhua,
after several years of privatization that created many wealthy families.
3. The Central Government is putting massive resources into Going Green–
The FYP envisions 5T RMB of investment in alternative energy, but a close read
indicates that much of this is expected to be provided by private investors. The FYP
actually will increase the use of fossil fuels, by re-powering the big SOEs in fossil
fuels, restructuring energy pricing, and opening up huge reserves in Xinjiang and
Inner Mongolia. Energy conservation is likely to be more important than renewables
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What does the 12th FYP say about Green Growth?
Priority sectors– for technology, capacity and export development
• Environmental preservation
• New generation information technology
• Biotechnology
• High technology manufacturing
• New energy
• New materials
• New energy vehicles
 Sales of “new energy” automobiles to exceed 1 million by 2015
 New energy automotive will be among the most important
sectors in the economy for the next ten years. China will be the
world’s largest producer of new energy vehicles
 Integrate BEV and hybrid electric vehicle technologies
 China plans investment of more than 100 billion RMB over the
next 10 years to support new-energy automobile production
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The plan continues the interventions post crisis . . .
• “Green spending” is estimated to be
2009-10 Stimulus package has direct or
US$221 billion, including renewables, lowindirect impact on many industries
carbon vehicles, high-speed rail, smart
grid, efficiency improvements, water
treatment (by HSBC). Much will be
Construction
Materials
financed by local governments
Consumer
Steel
• Historically, big infrastructure spending by
Real
Estate
the State has created huge opportunities
Road &
for entrepreneurs and MNCs (Internet
Infrastructure
backbone, ports, petrochemicals, power
grid)
RMB 4 trillion
Logistics
• The State Council has just reiterated
China’s interest in attracting foreign capital
into areas with large investment and high
technology needs
Rail
Airport
Travel/
Tourism
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Power
Equipment
Grid
Manufacturing
Power
Stimulus Package Generation
Agriculture
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Business
Renewable
Energy
Non-public money is the pillar of Cleantech sectors
Chinese Clean Tech Companies M&A
(2006-Q1/2010)
Chinese Clean Tech Companies IPO Capital
Raised (2006-Q1/2010)
2,000
244
(1)
1,500
1,000
500
-
1,659
(11)
581
(9)
2006
37 (1)
344 (6)
338 (7)
2008
2009
2007
Overseas IPO (US$M)
927
(6)
Q1'10
Domestic IPO (US$M)
6,000
5,000
4,000
3,000
2,000
1,000
-
5,332
27
25
3,501
1,28012
951 9
131 5
2006
2007
2008
Deal Value (US$M)
2009
30
25
20
15
10
5
0
Q1'10
Deal Number
Source: Cleantech Group, ChinaVenture
In 2009, China/HK accounted for both the greatest value globally from clean tech IPOs
(69percent), more than double the U.S. (26 percent) and 53 percent of deals too (17 of 32).
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U.S.-China system features
If we accept the premise that successful clean tech initiatives at national scale will
require close partnership between governments and private sector, how do China
and the U.S. compare?
Government-business involvement deeply
rooted in development model
Ideological and structural commitment to
free markets and regulator independence
2008/9 RMB 4 trillion ($589 billion )stimulus
2010/11 RMB 4 trillion ($589 billion) stimulus
Direct grants in auto
Direct grants in solar
State Grid Corp
SOE Power Corps
Central power price management
Non-regulatory controls
Near and mid-term advantage
implementing infrastructure
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?
Some stimulus funds
Some DOE grants
Supportive capital markets
Supportive private investment
Legislative delays in new regs
Market-based power corps
State-level price management
Only regulatory controls
Near and mid-term advantage
developing core technologies
U.S.-China system features-- different calculus
Comparing China and the U.S., the different models of development, different
stages of development, and different resource situations drive differing strategic
goals and focuses
• Build infrastructure to mitigate future
import/security risks
– Crude oil and food grains
• Maintain competitive environment for
export economy and domestic growth
• Reduce environmental impact
• Incentivize manufacturing capacity for
export value
• Indigenize technology to reduce
technology costs to manufacturers
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• Seed marketplace to diversify
commercial energy options
• Reduce dependence on foreign oil
and high risk domestic production
• Reduce environmental impact
• Incentivize technology development
for export value
• Incentivize manufacturing capacity for
export value
• Finance global green growth
commercial operators through PE/VC
channels
There is a consensus around fast growth sectors–
but we should reexamine frequently
Better than
average
Average
Worse than
average
Consensus
Possible
1. Financial services
2. Healthcare and health sciences
3. Agriculture and food
4. Cleantech (renewables and high tech)
5. Education
6. Entertainment and media
7. Mobile IT
8. Energy conservation
9. Fossil fuels and traditional power
10. Manufacturing
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Outbound investment remains dominated by energy
and materials
OUTBOUND INVESTMENTS FROM CHINA AND HONGKONG
TWELVE MONTHS THROUGH SEPTEMBER 2010
Totals
reported
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Macro Categories
percent totals
value totals
percent/totals value totals
Consumer Products
1%
346.47
1%
346.47
Consumer Staples
5%
2595.218
8%
2595.218
Energy and Power
27%
13384.541
42%
13384.541
Financials
38%
18971.591
excluded
excluded
Healthcare
1%
377.875
1%
377.875
High Technology
1%
446.703
1%
446.703
Industrials
11%
5372.376
17%
5372.376
Materials
16%
7912.434
25%
7912.434
Media and Entertainment
1%
390
1%
390
Real Estate
0%
204.392
1%
204.392
Retail
0%
6.974
0%
6.974
Telecommunications
ALL MACRO
CATEGORIES
1%
492.818
2%
492.818
100%
50501.392
100%
31529.801
©2010 Deloitte LLP. All rights reserved.
Synergies — U.S. and China enterprises
U.S.
China
Supplier of capital
Supplier of energy
Supplier of technology
Supplier of environmental products & natural
resources (rare earths and special metals)
Leading global producer of innovative
clean tech products
Market for U.S. clean tech technology products
• Clean tech now is the most popular VC/PE
investment category in China, and the investments
continue to increase
• 29 companies received VC/PE investment with total
disclosed value of US$784M in 2009
• In Q1 2010, 11 companies have received VC/PE
investment with total disclosed value of US$72M.
Largest deal in 2009 was one of the largest
automobile company, developer of EVs — US$426
million from a domestic PE firm. US$230 million
high profile investment in BYD
• The leading deals in 2010 thus far have involved: a
developer of LED lighting —US $22 million; and a
developer of advanced batteries for large-scale
energy storage — US$22 million
VC/PE Investment in China Clean Tech
(2006/Q1-2010/Q1)
600
16
14
500
12
400
10
300
8
6
200
4
100
2
0
0
Disclosed Deal Value (US$ M)
Source: Cleantech Group
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Number of Deals
Synergies — U.S. and China cooperation
U.S. LPs' Planned Changes to PE China
Investment Strategy over the Next 2 Years
Cleantech Joint
Venture with
Chinese Companies
China and HK
14 percent
U.S.
58 percent
Foreign (non-U.S.)
28 percent
-10%
0%
10%
20%
30%
Respondents
Decrease or stop investing
40%
Expand investment
50%
60%
Begin investing
Major U.S. Corporate Activity in Chinese Cleantech Innovation 2010 — some examples
Corporation
Description
A power tech company
Partnered with a China wind group to design and jointly develop multi-megawatt wind
turbines for onshore and offshore markets (May 2010)
World’s largest aircraft
manufacturer
Signed collaboration agreement with two Chinese state-owned enterprises to develop a
Jatropha-based biofuel with the aim of powering China’s first biofuel flight later this year
(May 2010)
A global infrastructure,
finance, and media
company
Opened smart grid demonstration center in Yangzhou aimed at Chinese utilities;
demonstrates grid infrastructure and control and home energy applications (April 2010)
An IT giant
Announced plans to invest $40M in creating its Energy & Utilities Solution Lab in Beijing to
develop technologies for China’s smart grid market. Expects $ 400M in revenue over the
next few years (March 2010)
The venture arm of a chip
giant
Announced a partnership with a China sovereign wealth fund, China’s sovereign wealth
fund, to invest in technology innovation globally, including clean tech (February 2010)
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Synergies — U.S. and China benchmark cases
Technology flows are indirectly documented in a number of high and low
profile investments, strategic alliances, and government policy decisions
A solar JV with
Chinese government in
Ordos, Inner Mongolia
• World’s largest solar farm, to be completed in 2019
• 2,000 MW PV Solar Farm, will power 3 million homes
• Underscores attraction of Cadmium Tellerium thin film technology over
domestic crystalline PV
• Estimated cost: US$5-6 billion
A solar technology center
In Xi’an, Shaanxi Province
Government subsidies to JV
automakers
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• World’s largest solar research facility & lab
• Xi’an city government will reimburse the company for a quarter of the
lab complex’s operating costs for five years
• Thin film manufacturing line, a complete crystalline silicon pilot
process, facilities for R&D, engineering, demo, testing and training
• Cost: US$250+ million
• The 10th Five‐Year Plan (2000-2005) began the Chinese
government's interest the development of EVs — allocated RMB
880 million (US$131 million) for EV Projects
• 11th Five- Year Plan (2006-2010) allocated RMB 1B (US$147M)
• In June 2010, the central government picked 15 automakers & JVs
for fuel-efficiency subsidies of RMB 3,000 (US$441) per vehicle
Synergies — U.S. and China
Distribution of Clean Tech Investment in China 2006-2010 Q1
By Number of Deals
Water &
Wastewater
Transportation
Recycling &
Waste
Materials
35
30
25
20
15
10
5
0
22
*Number of Deals
Manufacturing/
Industrial
Energy
Storage
Energy
Infrastructure
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By Disclosed Value (U.S.$ M)
Agriculture
Air &
Environment
Energy
Efficiency
Water &
Wastewater
Transportation
Recyclin
g&
Waste
Materials
Manufacturing/
Industrial Energy
Storage
Energy
Generation
Most Popular Clean Tech Investment
Sectors*
Agriculture
Air &
Environment
Energy
Efficiency
Energy
Generation
Energy
Infrastructure
 Energy generation and transportation
are still the key investment
beneficiaries, while energy efficiency
and energy storage, are important
emerging sectors increasingly gaining
investors’ attention.
Looking ahead — Five key takeaways
• China has been able to mobilize substantial amounts of capital and has pressed
the indigenous innovation campaign for many years
• Still, the pressing need to address environmental remediation and energy
security assures an important role for foreign investment and foreign technology
for years to come
• China derives benefits from its well-established government-business alignment
but also runs the risks of resource misallocation that is common to economies
with strong industrial policies
• The renewable energy build-out in the U.S. is likely to have a larger role for
decentralized power generation, net metering, and structured feed-in tariffs;
China to have a larger role for centralized, commercial scale generation facilities
• Substantial synergies exist between the U.S. as a technology and finance leader
and China as a manufacturing and construction powerhouse. The two systems
working harmoniously will play a dominant role in the greening of the globe
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