The reality of China, as has been said before, is not what you see reflected in the media. The daily headlines, new books and pundits either lambast or lionize China’s economic future. The truth, as usual, lies somewhere in between.
Lately, under the Chinese governments “rebalancing” plan, the nabobs of negativism have pounced on China’s 7.5 percent annual growth rate, as the straw that will break the back of China’s economy. Is it a cause for worry if you are planning to do business with or in China; absolutely, only a fool does not worry. But, does it signal the beginning of the end of the Chinese economy? Probably not. China’s State Capitalism model gives it more tools than its competition in the U.S. and Europe. Ironically, State Capitalism tends to be more predicable than market capitalism and therefore more attractive to entrepreneurs and businesses that are making break-the-bank or long term bets.
This means that for those who are willing to look past the visual and written noise, and look at what China is doing, there are opportunities.
Example: China’s investment in renewable energy during the 12th Five-Year-Plan period (2011-15) will reach 1.8 trillion RMB ($294 billion). China desires to lower its carbon footprint and increase its energy independence by utilizing more renewable energy. China has made a commitment to the international community that it will reduce its carbon emissions per unit GDP by 45 percent by 2020 and raise its non-fossil energy consumption to 15 percent of the primary energy mix.
Opportunity: Better renewable energy systems, which includes monitoring and control systems. Energy saving products and systems with three year or less pay-back.
Example: Shanghai residents will be paying more for water starting this month due to a new multi-tier water pricing system. Under the new system, residential water fees will increase progressively as water consumption rises.
A household that consumes 220 cubic meters of water or less a year will pay 3.45 RMB (56 cents) per cubic meter, up 23.2 percent from current prices. Households that consume between 220 and 300 cubic meters will pay 4.83 RMB per cubic meter, those consuming more than 300 cubic meters a year will pay 5.83 RMB per cubic meter.
Opportunity: Doing some simple math, a consumer in the upper water consumption bracket will pay $165 U.S. per year more than someone who consumes 220 cubic meters of water. The question is, do you have something which can save 80 cubic meters of water annually and costs less than $500 U.S. (three-year payback)?
Example: Sinopec Group, Asia’s largest refiner, announced recently that it will invest about 22.6 billion RMB ($3.6 billion) to upgrade its current production and environmental equipment.
Opportunity: Do you sell products and/or systems/services they can use? Given Milwaukee’s position in the factory automation controls industry, it would be hard to imagine that we would not have something to offer.
Example: The Chinese government will spend more than 3 trillion RMB ($489.3 billion) to enhance air and water pollution prevention and treatment, environmental officials told an environmental protection industry forum recently. An airborne pollution prevention and control action plan, which will be released soon, will be backed by 1.7 trillion RMB in investment from the central government, according to Wang Tao, an official with the pollution prevention department under the Ministry of Environmental Protection (MEP).
Wang added that an estimated 2 trillion RMB will be put in to enhance monitoring of drinking water sources and to control poisonous contaminants. In addition, the MEP is drafting a national standard for surface water quality, according to Zhao Yingmin, director-general of the MEP’s science, technology and standards department. The output value of the energy conservation and environmental protection industry during the12th Five-Year Plan period (2011-15) is expected to exceed 10 trillion RMB, a 40 percent increase compared to the 11th Five-Year Plan period (2006-10).
Opportunity: Keep counting until you reach one that makes sense.
Example: China will invest 4.7 trillion RMB ($767 billion) in road projects by 2030. The country will have more than 400,000 kilometers of national roads and highways by 2030, compared with 173,000 km in 2012, Dai Dongchang, chief planner of the Ministry of Transport, said at a recent news conference. He added that the funds would mainly come from government coffers, but that the government would be looking for investors willing to take an 8 percent return on investment. According to the ministry, every 1,000 km of highway requires around 1 million metric tons of steel, 9 million tons of cement and 800,000 tons of asphalt. Dai said that the road construction projects would respect the environment and avoid ecologically fragile areas. “Every road project will have to pass a strict environmental impact assessment prior to construction,” Dai said.
Opportunity: Consulting, technology and machinery.
Understand that China will defend its economic course swiftly and pragmatically so if you are following what they are doing and investing in you will be riding the current, rather than fighting it.
Einar Tangen, formerly from Milwaukee, now lives and works in Beijing, China. He is an adviser to Heilongjiang Province, Hebei Province QEDTZ, China.org.cn, China International Publishing Group, Beijing Baotong and DGI DESIGN. He is also a weekly public affairs commentator for CCTV News’ Dialogue and the author of “The Kunshan Way,” an economic development history of China’s leading county level city. While in Milwaukee, he was a partner at Jackson, Morgan and Tangen, president of E-Tech and a senior vice president at Stifel Nicolaus. He chaired various boards in Milwaukee and was a member of the Federal Home Loan Bank of Chicago. Readers who would like to submit questions or suggest areas of interest can send an e-mail to steve.jagler@biztimes.com.
