China is either the greatest opportunity or the greatest threat that the U.S. green technology industry has ever faced, depending on who you’ve been listening to lately. But for entrepreneurs and investors intimately involved in China’s green leap forward, the truth is somewhere in between those two extremes.
That’s the message from Wednesday’s Cleantech Forum in San Francisco, where several China greentech experts laid out their view on the most overhyped — and underhyped — portrayals of China’s rising role in global green technology. Here are a few of the highlights from both categories:
Three Ways China’s Greentech Markets Are Overhyped:
1). China’s rise in green technology is a menace to U.S. competitiveness: According to Andrew Beebe, chief commercial officer for Chinese solar panel giant Suntech, China and the U.S. aren’t competitors as much as two key actors in a global green technology market.
“There isn’t a winner and a loser” in the competition between China and the U.S. to grow their renewable energy businesses, he said. Sure, China leads the world in solar panel manufacturing, but every one solar manufacturing job leads to about three jobs in installing and servicing those panels in markets like the U.S., and “those jobs will never be outsourced,” he said.
2). China’s domestic solar industry is catching up to the U.S. market: Beebe said that’s just not happening yet, and probably won’t happen for a couple more years at least. That’s partly because China, while still the world’s second-largest economy, is still a developing economy where most people live on wages that would be considered poverty level in the U.S. and Europe.
But China’s domestic solar market is also lagging because China’s strength in big, centralized renewable power systems like wind farms isn’t matched by its sophistication in interconnecting distributed generation sources like rooftop solar systems, he said. That’s one big reason that the Chinese market is still Suntech’s smallest in terms of solar panel sales, he said.
3). China isn’t a friendly place for early-stage green tech startups: There’s no doubt that China lacks the angel investment and early-stage venture capital communities that the U.S. does, said Andy Tang, managing director of ABB Technology Ventures, the venture arm of Swiss grid giant ABB.
But China makes up for it in the wealth of government-supported incubators, he said. “Many local governments have a lot of cash, and they want to put it to work,” he said. “It’s quite a healthy field for early-stage opportunity,” even for U.S. or European firms with technology that can help.
Three Reasons That China’s Market Is Underhyped:
1). China’s smart grid plans include more than massive new transmission lines and substations: China is planning to direct the lion’s share of its estimated $100 billion smart grid buildout over the next five years toward massive new transmission systems to connect solar and wind resources in the west to population centers in the east. But at the same time, the country is installing millions of smart meters at a time, Tang said — and in China, unlike the U.S., a million meters can be a pilot project.
“Compared to the U.S., in terms of venture investment, I think that’s an area where you can make good returns,” he said. One example, from Tang’s previous job as a partner at DFJ DragonFund China, is Miartech, a startup that has developed a powerline carrier technology that’s now being used as a standard for State Grid Corp. of China’s plans to roll out as many as 170 million smart meters over the coming years.
2). China’s government is opening the doors to foreign partnerships in the green technology space. There’s no doubt that China’s government has been the key driver for its green technology growth — and that close government ties have to a large extent dictated success for Chinese green tech companies.
But in its latest $1.5 trillion five-year economic plan, China’s government is indicating that much of the funding it’s targeting for key industries is expected to come from the private sector, said Mike DeWoskin, director of Deloitte’s China Research and Insight Center. That includes the 5 trillion yuan ($761 billion) target China has set for investment into alternative energy over the next 10 years, he said. “We’re getting a window that has not been opened before, which is very important to cleantech investors.”
3). China is offering foreign investors exit strategies: Mohsen Khalil, global head of climate business for the World Bank’s International Finance Corporation — an institution that’s made about $1 billlion in Chinese clean tech investments — agreed that exits for capital investors are more difficult to predict in China than in the well-developed U.S. IPO markets.
Still, in the IT sector, where IFC has a larger portfolio, returns on venture capital are now outperforming other regions, he said. “In the beginning, we were concerned because… exits were not well defined. They’re still evolving, but we now have some exist, and the return is 40 percent-plus.”
There’s plenty of indication that China may offer the same exit opportunities in green investments as well. China led the world in green technology IPOs last year, and predictions are it will keep that lead in 2011.
Image courtesy of Steve Webel via Creative Commons license.