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Since its first biomass power plant was launched in 2006 in Shanxian County of Shandong Province, China National Bio Energy Co. Ltd. (NBE) has built 26 additional facilities. Ten more are under construction.
Despite the fact that today NBE is the only company in the world to incorporate the entire biomass energy production chain, from equipment manufacturing to power plant operation to providing a whole range of proprietary technology, a lack of capital has haunted Kai Johan Jiang, Chairman of NBE.
“Biomass energy is a totally new industry in China and we still cannot produce ideal financial numbers. Getting bank loans is still pretty difficult,” he said.
Green companies in China, especially privately owned ones, are facing increased difficulties in gaining support from capital markets.
While China’s environmental protection industry is becoming a hotspot of investment, financing difficulties continue to plague the green sector, according to a research report issued by CCID Consulting, China’s largest research, consulting and IT outsourcing service company.
The Report on the Investment and M&A in China’s Environmental Protection Industry released on April 18 said the long investment cycle, slow return and high technological content standard have made it even more difficult for enterprises in the industry to obtain financing.
Despite the fact the government has been the major sponsor of environmental protection projects, social capital is still needed to fill the huge financing gap in the country’s green ambition. This will require full utilization of market mechanisms, a diversified investment structure and complete government support.
Golden period
China’s Central Government released in December 2011 a work plan for environ- mental protection in the 12th Five-Year Plan(2011-15).
Over the five years, China plans to carry out eight environmental protection projects and launch a series of environmental surveys and pilot programs.
It is estimated that industries related to environmental protection in China will achieve an output value of more than 10 trillion yuan ($1.54 trillion) from 2011 to 2015. The multiplier effect from this emerging sector is estimated to be eight to 10 times larger than other industry sectors.
A white paper on environmental protection released by CCID Consulting in November last year pointed out that China’s environmental protection industry is entering a golden period of development and the general layout has taken initial shape.
The white paper also unveiled investment opportunities. The environmental protection industry is undergoing a wave of growth, but the development speeds and maturation periods of different divisions are different: The solid waste treatment industry is growing in general; the development of the sewage treatment industry is lagging behind the urban water supply system; the growth potential of the de-nitration subindustry in the air pollution control industry is greater; the de-sulfurization industry in power plants is mature; the de-sulfurization market (such as steel industry) beyond power plant has yet to be initiated.
China will introduce favorable tax and financial policies to support its green economy during the 12th Five-Year Plan period. A strong “green”policy is essential if China wants to maintain its rapid and sustainable growth. “China will build a good fund-raising environment for companies to develop green technologies by establishing green technology investment and related equity funds,” said Wang Yuqing, Deputy Director of the Committee of Population, Resources and Environment of the National Committee of the Chinese People’s Political Consultative Conference.
Currently, many provinces and municipalities are formulating development plans for the environmental protection industry, establishing special industrial parks and developing policies to streamline the management mechanism of the industry.
Financing difficulties
A survey conducted by Hebei Environment Protection Industry Association showed that 62 percent of clean enterprises in north China’s Hebei Province have annual profits below 1 million yuan ($158,730); 65 percent of environment technology research enterprises have annual income below 100,000 yuan ($15,873).
According to Zou Ji, Vice Dean of the School of Environment and Natural Resources with Renmin University of China, most of China’s manufacturers and service providers in the industry are small and face financing difficulties.
Overcoming these difficulties is the biggest problem curbing development of these enterprises in Hebei, said Xu Dong with the Hebei Environment Protection Industry Association. More than half of their association member enterprises had problems in financing, he said.
According to Huang Junwu, an analyst of environmental economics with CCID Consulting, since China’s environmental protection industry is a latecomer among international player it currently lags behind in terms of scale and output value.
“China’s top environment protection enterprises have annual output value less than 10 billion yuan ($1.59 billion), only about one 10th of that of the France-based Veolia Water, the world’s leading operator in water services,” Huang said.
“Since most environment protection enterprises are small and do not have their own collateral, such as real estate, it’s hard to get loans from banks,” said Chen Shuguang, Vice General Manager of China Energy Conservation and Environmental Protection Group.
Bankers admitted that their support for clean industry has room for improvement.
“Financial institutions have been used to serving traditional industries. The characteristics of the clean industry, such as long investment cycle and slow returns, pose higher risks. We should be more innovative in providing credit to clean enterprises,” said Ma Weihua, President of China Merchants Bank.
Industry analysts pointed out that China would face challenges in raising funds for the development of its green economy.
According to Xue Tao, Director of the China General Consulting and Investment, from 2011 to 2015, around 3.4 trillion yuan($539.6 billion) of environmental protection investment will be required and the government-backed projects will demand investment of 1.5 trillion yuan ($238.1 billion). The remaining 1.9-trillion-yuan ($301.5-billion) gap will be filled by social capital.
Funds and subsidies provided by the government are far from enough for China’s green economy, and various investment tools and financing means are desperately needed, said Huang.
New channels
“Since the establishment of China’s multi-level capital market, China’s green sector has seen a surge in investment activities,” said Huang.
According to the CCID report, in the past decade, 37 environment protection enterprises obtained 46 rounds of equity investment. Of this total, the 32 investments disclosed raised capital of $717 million.
“Most of the capital was invested in the infrastructure construction of water treatment and solid waste treatment,” said Huang.
As active players at the industrial forefront, venture capital (VC) and private equity (PE) institutions have long participated in the emerging industries with low energy consumption and high growth. With the establishment of the strategic positioning of environment protection industry, their investment in this sector has increased. The data from CCID showed that from 2010 to 2011, China’s environmental protection industry saw 41 new VC/PE investment deals, involving $269 million.
“The Chinese Government recently set new policies to stimulate the continued growth of the VC industry, and more investment is planned to increase VC investors’ appetite in energy conservation, environmental protection, next generation IT, biotech, advanced manufacturing, alternative energy, innovative materials and new-energy-powered vehicles,”said Maria Pinelli, Ernst & Young’s Global Vice Chair for Strategic Growth Markets.
With the launch of ChiNext, China’s growth enterprise board, in October 2009, green enterprises across China got the chance to seek financing through initial public offerings (IPOs). Statistics show that companies in the strategic emerging industries, including new energy, newtype materials, environmental protection and energy conservation, information technology and bio-pharmaceutical sectors, account for 88.19 percent of all the listed companies.
“ChiNext mainly serves new sectors with high growth potential and new technologies. The environment protection industry is a golden apple for ChiNext investors,” said Sun Yansheng, a lawyer with Beijing Tianyin Law Office whose major business is IPO-related legal affairs.
According to the CCID report, during the 2000-11 period, China’s environment protection industry saw 38 new IPOs, raising 23.58 billion yuan ($3.74 billion). Of the total, 24 IPOs happened on the mainland.
“Before ChiNext, Chinese green enterprises mainly were listed in overseas stock markets. Out of the 13 environmental protection enterprises listed from 2001 to 2009, eight were in the overseas stock market. Obviously, ChiNext accelerated the IPO pace for them,” said Huang.
In addition to the stock market, China’s environment protection industry gets financial support from industry funds and government support.
In 2009, China General Technology Group launched China’s first green industry fund, with an initial offering size of 2 billion yuan ($317.46 million) aimed primarily at operational projects including water delivery, sewage treatment, solid waste disposal, renewable energy, energy conservation and carbon reduction, as well as equity investment in environmental protection enterprises.
Since 2010, six industry funds specializing in environment protection have been set up, raising a total of 15.8 billion yuan ($2.5 billion), according to the CCID Consulting report.
Local governments have also been active in terms of involvement in the green industry. In April, China’s biggest investment fund specializing in the development of the environmental protection industry was established in Guangzhou. The fund will support the local government’s efforts to build a financial innovation platform focusing on waste disposal. The fund is planned to reach 50 billion yuan($7.94) within three years.
In addition, the Ministry of Environmental Protection is joining forces with other departments to discuss the possibility of establishing a national development fund for green industries, according to Beijing-based China Securities Journal.
Despite the fact that today NBE is the only company in the world to incorporate the entire biomass energy production chain, from equipment manufacturing to power plant operation to providing a whole range of proprietary technology, a lack of capital has haunted Kai Johan Jiang, Chairman of NBE.
“Biomass energy is a totally new industry in China and we still cannot produce ideal financial numbers. Getting bank loans is still pretty difficult,” he said.
Green companies in China, especially privately owned ones, are facing increased difficulties in gaining support from capital markets.
While China’s environmental protection industry is becoming a hotspot of investment, financing difficulties continue to plague the green sector, according to a research report issued by CCID Consulting, China’s largest research, consulting and IT outsourcing service company.
The Report on the Investment and M&A in China’s Environmental Protection Industry released on April 18 said the long investment cycle, slow return and high technological content standard have made it even more difficult for enterprises in the industry to obtain financing.
Despite the fact the government has been the major sponsor of environmental protection projects, social capital is still needed to fill the huge financing gap in the country’s green ambition. This will require full utilization of market mechanisms, a diversified investment structure and complete government support.
Golden period
China’s Central Government released in December 2011 a work plan for environ- mental protection in the 12th Five-Year Plan(2011-15).
Over the five years, China plans to carry out eight environmental protection projects and launch a series of environmental surveys and pilot programs.
It is estimated that industries related to environmental protection in China will achieve an output value of more than 10 trillion yuan ($1.54 trillion) from 2011 to 2015. The multiplier effect from this emerging sector is estimated to be eight to 10 times larger than other industry sectors.
A white paper on environmental protection released by CCID Consulting in November last year pointed out that China’s environmental protection industry is entering a golden period of development and the general layout has taken initial shape.
The white paper also unveiled investment opportunities. The environmental protection industry is undergoing a wave of growth, but the development speeds and maturation periods of different divisions are different: The solid waste treatment industry is growing in general; the development of the sewage treatment industry is lagging behind the urban water supply system; the growth potential of the de-nitration subindustry in the air pollution control industry is greater; the de-sulfurization industry in power plants is mature; the de-sulfurization market (such as steel industry) beyond power plant has yet to be initiated.
China will introduce favorable tax and financial policies to support its green economy during the 12th Five-Year Plan period. A strong “green”policy is essential if China wants to maintain its rapid and sustainable growth. “China will build a good fund-raising environment for companies to develop green technologies by establishing green technology investment and related equity funds,” said Wang Yuqing, Deputy Director of the Committee of Population, Resources and Environment of the National Committee of the Chinese People’s Political Consultative Conference.
Currently, many provinces and municipalities are formulating development plans for the environmental protection industry, establishing special industrial parks and developing policies to streamline the management mechanism of the industry.
Financing difficulties
A survey conducted by Hebei Environment Protection Industry Association showed that 62 percent of clean enterprises in north China’s Hebei Province have annual profits below 1 million yuan ($158,730); 65 percent of environment technology research enterprises have annual income below 100,000 yuan ($15,873).
According to Zou Ji, Vice Dean of the School of Environment and Natural Resources with Renmin University of China, most of China’s manufacturers and service providers in the industry are small and face financing difficulties.
Overcoming these difficulties is the biggest problem curbing development of these enterprises in Hebei, said Xu Dong with the Hebei Environment Protection Industry Association. More than half of their association member enterprises had problems in financing, he said.
According to Huang Junwu, an analyst of environmental economics with CCID Consulting, since China’s environmental protection industry is a latecomer among international player it currently lags behind in terms of scale and output value.
“China’s top environment protection enterprises have annual output value less than 10 billion yuan ($1.59 billion), only about one 10th of that of the France-based Veolia Water, the world’s leading operator in water services,” Huang said.
“Since most environment protection enterprises are small and do not have their own collateral, such as real estate, it’s hard to get loans from banks,” said Chen Shuguang, Vice General Manager of China Energy Conservation and Environmental Protection Group.
Bankers admitted that their support for clean industry has room for improvement.
“Financial institutions have been used to serving traditional industries. The characteristics of the clean industry, such as long investment cycle and slow returns, pose higher risks. We should be more innovative in providing credit to clean enterprises,” said Ma Weihua, President of China Merchants Bank.
Industry analysts pointed out that China would face challenges in raising funds for the development of its green economy.
According to Xue Tao, Director of the China General Consulting and Investment, from 2011 to 2015, around 3.4 trillion yuan($539.6 billion) of environmental protection investment will be required and the government-backed projects will demand investment of 1.5 trillion yuan ($238.1 billion). The remaining 1.9-trillion-yuan ($301.5-billion) gap will be filled by social capital.
Funds and subsidies provided by the government are far from enough for China’s green economy, and various investment tools and financing means are desperately needed, said Huang.
New channels
“Since the establishment of China’s multi-level capital market, China’s green sector has seen a surge in investment activities,” said Huang.
According to the CCID report, in the past decade, 37 environment protection enterprises obtained 46 rounds of equity investment. Of this total, the 32 investments disclosed raised capital of $717 million.
“Most of the capital was invested in the infrastructure construction of water treatment and solid waste treatment,” said Huang.
As active players at the industrial forefront, venture capital (VC) and private equity (PE) institutions have long participated in the emerging industries with low energy consumption and high growth. With the establishment of the strategic positioning of environment protection industry, their investment in this sector has increased. The data from CCID showed that from 2010 to 2011, China’s environmental protection industry saw 41 new VC/PE investment deals, involving $269 million.
“The Chinese Government recently set new policies to stimulate the continued growth of the VC industry, and more investment is planned to increase VC investors’ appetite in energy conservation, environmental protection, next generation IT, biotech, advanced manufacturing, alternative energy, innovative materials and new-energy-powered vehicles,”said Maria Pinelli, Ernst & Young’s Global Vice Chair for Strategic Growth Markets.
With the launch of ChiNext, China’s growth enterprise board, in October 2009, green enterprises across China got the chance to seek financing through initial public offerings (IPOs). Statistics show that companies in the strategic emerging industries, including new energy, newtype materials, environmental protection and energy conservation, information technology and bio-pharmaceutical sectors, account for 88.19 percent of all the listed companies.
“ChiNext mainly serves new sectors with high growth potential and new technologies. The environment protection industry is a golden apple for ChiNext investors,” said Sun Yansheng, a lawyer with Beijing Tianyin Law Office whose major business is IPO-related legal affairs.
According to the CCID report, during the 2000-11 period, China’s environment protection industry saw 38 new IPOs, raising 23.58 billion yuan ($3.74 billion). Of the total, 24 IPOs happened on the mainland.
“Before ChiNext, Chinese green enterprises mainly were listed in overseas stock markets. Out of the 13 environmental protection enterprises listed from 2001 to 2009, eight were in the overseas stock market. Obviously, ChiNext accelerated the IPO pace for them,” said Huang.
In addition to the stock market, China’s environment protection industry gets financial support from industry funds and government support.
In 2009, China General Technology Group launched China’s first green industry fund, with an initial offering size of 2 billion yuan ($317.46 million) aimed primarily at operational projects including water delivery, sewage treatment, solid waste disposal, renewable energy, energy conservation and carbon reduction, as well as equity investment in environmental protection enterprises.
Since 2010, six industry funds specializing in environment protection have been set up, raising a total of 15.8 billion yuan ($2.5 billion), according to the CCID Consulting report.
Local governments have also been active in terms of involvement in the green industry. In April, China’s biggest investment fund specializing in the development of the environmental protection industry was established in Guangzhou. The fund will support the local government’s efforts to build a financial innovation platform focusing on waste disposal. The fund is planned to reach 50 billion yuan($7.94) within three years.
In addition, the Ministry of Environmental Protection is joining forces with other departments to discuss the possibility of establishing a national development fund for green industries, according to Beijing-based China Securities Journal.