China’s green investment challenge

So far, the Chinese green sector appears to be unscathed from the current financial crisis with no shortage of capital flowing in. The most recent boost of course was the central government’s RMB 4 trillion (US$585 billion) economic stimulus package, which includes RMB 350 billion (US$36.5 billion) for environmental projects, such as waste-water treatment and renewable energy facilities.

The benefits of this government-backed stimulus are already being felt as there has been a surge in government-solicited bids for environmental projects across the country.
This of course has led to new investor optimism. The private consulting firm, the CleanTech Group, reported that investors at its recent December conference in Shanghai see no slowdown in the Chinese cleantech industry. Meanwhile, the super-ministry National Development Reform Commission recently reported that for the 4th quarter alone, investments in the country’s rural water resources and energy facilities, such as biogas, topped over RMB 22 billion (US$3.2 billion).

While all this is no doubt good news for Chinese green industries and the country’s quest to improve its environmental quality, investors seeking to make a quick profit from this growth must beware. The reason is simple: while significantly improving, the Chinese green sector remains an extremely competitive industry that is fraught with challenges in which only the strongest companies can thrive.

One key challenge is costs. While labor is no doubt cheaper in China than elsewhere, the Chinese business climate is still exposed to withering competitive pressure, and firms must constantly find ways to make lower-priced products. However, Chinese manufacturing expenditures have surged, particularly on raw materials, many of which must be imported.

Guardian