China’s Environmental Protection Industry Boasts Unlimited Business Opportunities
Not long ago, China’s first equity investment fund dedicated to the environmental protection industry was launched in Chongqing. Meanwhile, nationwide law enforcement against environmental pollution violations has remained stringent recently. Multiple polluting enterprises in Ningxia, Heilongjiang and other regions have been investigated and penalized. Relevant authorities have also actively pushed forward environmental improvement initiatives: Sichuan set up incentive funds for air quality governance, with 11 cities fined for failing to meet PM10 control targets; Shandong rolled out subsidies for coal-fired boilers with ultra-low emissions, with the first batch of RMB 140 million reward and subsidy funds fully allocated; multiple central departments jointly issued a circular to raise operational subsidies for new energy buses, among other measures.
Alexander Schweitzer, Chairman of ALBA Group — one of the world’s top ten resource recycling and environmental service conglomerates — accompanied Angela Merkel, then German Federal Minister for the Environment and now German Chancellor, on her visit to China two decades ago. He recalled his initial impressions of China and the tremendous transformations the country has witnessed in environmental protection over the past 20 years.
In a recent interview with reporters from China Economic Times, Schweitzer stated that China’s environmental protection industry is still in its "kindergarten stage", meaning the sector has only just embarked on its development journey and boasts enormous growth potential. Attracted by such promising prospects, he relocated to China to live permanently in 2014. In March 2014, under the joint witness of President Xi Jinping and Chancellor Merkel, Schweitzer launched China’s green fuel project.
“Our business in China has expanded at a very rapid pace over the past three years. We possess leading technologies and full industrial chain advantages. We aim to realize full localization and explore the market alongside Chinese partners,” Schweitzer disclosed. He also revealed plans to sell partial equity stakes in the group to cooperate with enterprises that share the same vision and values.
Schweitzer noted that Germany suffered comparable severe pollution levels in the 1970s as China does today. After the German government prioritized environmental governance and protection, remarkable results were achieved. China is poised to forge ahead faster than other nations in this regard, and every niche market within environmental protection holds massive potential.
“China has ranked as the world’s largest generator of solid waste since 2004. Solid waste output is projected to surge by another 50% over the next decade, which will drive greater investment and intensified efforts in waste treatment. China generates an astronomical volume of waste while facing raw material shortages, and we can convert such waste into reusable raw materials,” Schweitzer explained.
Specializing in turning waste into valuable resources, ALBA Group has identified immense commercial opportunities and carried out strategic layout across multiple Chinese regions. ALBA Group is far from the only enterprise bullish on China’s environmental protection sector; both Chinese and foreign firms are eager to capture a share of the market.
Against the backdrop of the new normal of economic development, China’s environmental protection industry is standing at the threshold of unprecedented development opportunities. Industry experts pointed out that around the 18th National Congress of the Communist Party of China, China rolled out a dense array of environmental policies to advance comprehensive pollution governance, offering unprecedented broad and robust support for the sector. A new batch of major policies is expected to be released within the year. These measures have clarified the development priorities and direction for the environmental industry while delivering strong growth impetus, ushering the sector into a golden age of expansion.
A senior official with the National Development and Reform Commission (NDRC) recently stated that nine major measures will be implemented to accelerate the growth of the energy conservation and environmental protection industry, tightening regulatory constraints and introducing incentive policies to foster a sound market and policy environment. China’s energy conservation and environmental protection industry posted operating revenue of approximately RMB 3.9 trillion in 2014, with an annual compound growth rate of 30%. Its total output value is projected to hit RMB 4.5 trillion in 2015, making it a new pillar industry of the national economy.
Notably, China was in the process of compiling the 13th Five-Year Plan for ecological and environmental protection. The Ministry of Environmental Protection recently held an extensive seminar on implementing the newly revised Environmental Protection Law and drafting the 13th Five-Year environmental plan, with Minister Chen Jining attending and delivering a keynote speech. Chen Jining stressed that authorities should adopt a broader vision and uphold reform and innovation, center all work on improving environmental quality, practice the Three Stricts and Three Earnests, strive to enhance work quality, and vigorously advance ecological and environmental protection efforts.
“China is now at an inflection point in pollution governance, bringing abundant opportunities for the environmental protection industry. Meanwhile, industrialized environmental protection is a prerequisite for professional pollution treatment,” said Chang Jiwen, Deputy Director of the Institute of Resources and Environmental Policy, Development Research Center of the State Council.
Industry insiders believe China’s environmental protection industry still faces numerous challenges:
First, although a relatively complete industrial system of considerable scale has taken shape, the sector’s overall scale, industrial structure, technological standards and marketization level require drastic upgrading.
Second, innovation capacity remains insufficient. The enterprise-centered environmental technology innovation system is underdeveloped, university-industry-research collaboration is loose, R&D investment is inadequate, core technologies are not fully mastered, and many key pieces of equipment rely on imports.
Third, market order is irregular, plagued by severe local protectionism and vicious cut-throat competition based on low quality and low prices. Pollution treatment projects prioritize construction over operation management, resulting in low compliance rates for pollutant treatment facilities.
Fourth, irrational industrial structure prevails: most enterprises are small-scale, industrial concentration is low, environmental service sectors account for a small proportion of the whole industry, and a full-spectrum comprehensive service system has yet to be established.
Fifth, policy and institutional frameworks are incomplete. Fiscal and tax incentives for environmental enterprises deliver limited stimulus with insufficient guidance, while relevant laws and regulations are imperfect and poorly enforced.
Sixth, capital input is insufficient, and enterprises face great difficulties in financing.
Industry practitioners proposed that the government can introduce social capital into pollution governance. On one hand, this eases fiscal pressure and transforms the government’s role from a direct provider of infrastructure and public services to an independent regulator. On the other hand, “letting specialized enterprises handle specialized work” helps boost pollution treatment efficiency and cut governance costs.
Domestic experts share the view that China’s environmental protection industry is still in its primary developmental stage. Chang Jiwen suggested that the central government should introduce more supportive policies to lower financing costs and market entry thresholds for social capital investing in environmental sectors, encourage banks and capital markets to develop innovative environmental financial products, and expand financing channels for all enterprises engaged in pollution treatment.
Schweitzer remarked that Germany’s environmental protection industry already boasts an annual market volume of 340 billion euros and will soon outsize its automotive sector, while China’s market potential is even greater. Provided China attaches sufficient importance to environmental protection and takes resolute action, the goal of building a land of lucid waters and lush mountains will be achieved at a rapid pace.
