Investing in a better environment

Fighting climate change and making China energy efficient will require billions of yuan in investment. Why then, asks Li Taige, are the country’s investors still caught up in the property market?

“Three days ago, the Chinese government published plans for developing renewable sources of energy,” Li Xiaoqiang, vice-chair of China’s National Development and Reform Commission, said on September 7 at Dalian’s “summer Davos” meeting. “By 2020, China will increase the portion of renewable resources in its total energy consumption to 15%, up from the current 7.5%. This means we need to invest at least 200 billion euros [around US$285 billion] in renewable energy.”

But China needs to invest far more than 200 billion euros – perhaps even 10 times that figure – in energy-saving technology and environmental protection. According to estimates by the International Energy Agency in its World Energy Outlook 2006, China will need to invest US$3.7 trillion (around 2.6 trillion euros) in new energy sources between now and 2030. Investment on this scale will clearly involve long-term planning.

Shi Zhengrong, however, is an example of how to seize this opportunity. Shi studied in Australia under Martin Green, a solar energy scientist and professor at New South Wales University, and returned to China in 2001 to found the company Suntech. Despite the lack of a domestic market, it has become the world’s fourth-largest manufacturer of solar energy products, 98% of them for export.

It has made Shi very rich. Suntech went public on the New York Stock Exchange in December 2005; in May the following year Shi topped New Fortune’s list of the 500 richest people in China, having amassed a 15 billion yuan (almost US$2 billion) fortune.

But the wealthy of China have not rushed to invest in renewable energy. In April, when New Fortune published its 2007 list, Shi had fallen to fifth place, despite his wealth increasing by 2.66 billion yuan (US$354 million). Of the eight richest people in China, he is the only one not to have made his fortune in real estate. China’s richest person is now Yang Huiyan, worth 45.5 billion yuan (around US$6 billion) and the majority shareholder in Bilin Holdings.

Real estate tycoons owe their fortunes to the fever in China’s property and stock markets, not to technological innovation or environmental protection.

In the rest of the world, the environment is a hot new area for venture capital investors. But not in China. It is a high-tech – and high-risk – undertaking, unlike the real estate sector, where low risks and high profits are the order of the day. As one property developer admitted to Southern Weekend, “the profits we make are embarrassing.”

“[China’s] investment environment is getting worse,” said Lang Xianping, an economist at Hong Kong Chinese University, in August. Investment from private entrepreneurs is less than 20% of that in developed countries. Lang explains: “houses bought two years ago are worth 10 or 20 million yuan extra today, while working hard on a business will only bring you a 5% return on investment.”

“Without a transparent and open market,” an expert on science and technology from the Chinese Academy of Sciences told me, “companies can make money by relying on relationships, insider trading and exchanging building plots. Why would they bother with new technology?”

The Chinese government, at all levels, has a duty to create an environment that will reward investment in energy efficiency, environmental protection and innovation. The central government is already aware how urgently China needs to reduce power consumption, cut pollution and combat climate change. But local officials are still busy selling off land and assisting power-hungry, polluting enterprises for the sake of local GDP growth – or a chance to pocket the proceeds.

“Some of our colleagues continue to view GDP as crucial,” said Wan Gang, the minister for science and technology, speaking on September 10 at the China Scientists Association conference in Wuhan. “Reducing power consumption and pollution are viewed as optional extras. Policy support, working mechanisms and supervision are still completely lacking.”

We should not target anyone who legally invests in real estate. But China needs investment in energy efficiency, the environment and the low-carbon economy. Wan put it well. “Our natural resources are threatened, the environment is under too much pressure and the people are unhappy.”

Fortunately, the investment environment may be starting to change, with sustainable investment gradually becoming more popular.

A company named PowerU has developed a new energy-saving technology for central air-conditioning systems. It supplies its chilled water storage technology at no cost to the user – taking only half of the energy costs saved as a service fee. PowerU has received investment from Tsing Capital’s China Environment Fund and Siemens Investment.

PowerU’s technology is in use in airports, hotels, shopping malls and factories in China. The technology helped bring annual electricity costs down by 2 million yuan at one shopping mall in Wuhan, CCTV reported in October 2006. Miao Wei, the party secretary for Wuhan, indicated the city may start charging heavy energy users more, and use the extra money to fund the new power-saving technology.

Of course, not all energy-saving technology is mature enough to provide benefits for both company and client. If environmental costs such as carbon emissions are not considered, new technology often appears uncompetitive during its early stages. In these cases, besides government support, we need business to have a strong sense of social responsibility, the ability to develop new technology – and patience. 

Hopefully one day, rather than property tycoons, there will be more people like Shi Zhengrong on China’s rich lists.

In reality, the real estate sector and energy-saving are closely linked. Ninety-nine percent of all China’s buildings are classed as large energy consumers, and buildings account for 27% of all of the country’s energy consumption. Power consumption by building area is three times that of developed countries. While property developers are busy making their money, they should also give some thought to the environment.


Li Taige is a Beijing-based journalist. He obtained a masters degree in engineering from Sichuan University in 1997, and studied as a Knight Science Journalism Fellow at the Massachusetts Institute of Technology (MIT) in 2003-2004.