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Go Global: ========================================================================
China ========================================================================
Daniel Seemann
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Bigger. Greener. China. ========================================================================
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China has become the world’s economic engine in times of crisis. This is also true for the greentech sector, which is growing at a faster pace than in many other countries around the globe. However, China still has some work to do.
The past two years have been times of growth and expansion for China’s greentech markets. Although the greentech sector still faces macroeconomic challenges, China’s overwhelming need for energy and environmental technology continues to foster its rapid growth.
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“China's strategy over the past 20 years was to build, build, build and grow. Now, there is a strong focus on energy and efficiency,” says Ellen Carberry, co-founder and Managing Director of the China Greentech Initiative (CGTI), the only platform between China
and international partner companies dedicated to identifying, developing and promoting green technology solutions in China. It was formed by 500 decision makers from 100 organizations. CGTI has just released their 2012 China Greentech Report, which summarizes their institutional point of view for Greentech in China.
Green growth with risks ahead
the 12th Five Year Plan, the report prognosticates that China’s energy mix will slowly shift from coal to other fuels. This is based on strong macroeconomic facts. When it comes to energy, China already has to import over half of its oil. The country is also heavily reliant on coal, which produces high emissions of carbon and other air and water pollutants. Another major impetus for a changing energy policy in China is a
rising public awareness, following a number of major pollution incidents in 2011.
Invest locally, export globally China initiated several policies to support the domestic greentech industry. But 2011 also saw the continuation of an earlier trend, with the renewable energy sector dominating outbound
Several macroeconomic challenges were identified for China’s greentech markets in the report. One big obstacle is the focus on state-led growth in the energy sector that may especially harm those greentech industries dominated by smaller private companies, such as solar or energy services. In addition, a general drop in Chinese exports has particularly hurt manufacturers in these energy sectors. Furthermore, a frugal monetary policy, together with a gradual decline in investment and infrastructure spending, has hurt financing for greentech-related projects. And finally, demographic shifts are increasing labour costs across the greentech sector. Nevertheless, the report predicts that this might lead to greater innovation and automation in renewable energy manufacturing and consolidation in other energy fields.
Since 2011, the Chinese government started to react to these circumstances by lifting targets for energy efficiency, solar and wind. In addition, the country enacted new policies in the area of energy taxes and carbon trading. However, in other areas such as biofuels, progress has faced setbacks or has been uneven. Still, based on targets in
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Changing energy policy
Huxingting Tea House at Yu Gardens
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investments and companies going abroad to deal in this area. 2011 also saw a new push for investing in basic infrastructure abroad – such as European water and power grid utilities – to achieve asset diversification and financial returns. The report states that in the future, China will continue to deploy its capital, labour and technology abroad, deepening international collaboration and cooperation in the area of greentech.
Greentech market opportunities
Low priced renewables, limited funding 2011 was a positive year for renewable energy in China, especially for solar and wind energy. In that year, the Central Government published concrete installation targets for renewable energy by 2015, doubled the surcharge rate for renewable energy and introduced specific carbon reduction policies. However, Chinese solar module makers suffer from severe overcapacity problems and squeezed profits, as the demand from European and U.S. markets for Chinese module sales weakens. To help absorb excess solar production, the Chinese government stimulated its domestic market by raising the feed-in tariff for solar power. In the
wind sector, China installed a capacity of about 18 gigawatts in 2011. Biomass power generation also experienced rapid growth thanks to favourable policies. Given the high cost of renewable energy projects, limited funding sources have become a bottleneck for project development. Debt – such as bank loans and bonds – is currently the main source for wind and solar financing, but good terms are only available to the largest enterprises or state-owned enterprises. At the very least, there is direct financial support available from the Chinese government for wind and solar energy – including tax credits, preferential land-use policies and lowinterest loans.
The biggest smart power grid ever Energy efficiency targets and the rising share of renewable energy in the country’s energy mix represent a big challenge to the Chinese power grid as it is currently designed and operated. For this reason, China has begun with the construction phase of its “Strong and Smart Grid Plan”. It aims to establish
Shanghai, China
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CGTI identifies different sectors in which the greentech industry might grow in the future. The size of conventional energy in China’s energy mix is still huge – and although the government continues to restructure the coal mining industry, it will continue to experience strong growth. The nuclear and gas sectors will also continue profiting from government policy support in the future. However, stricter emission standards will affect coal plants, and the government will introduce carbon tra-
ding pilot programs. And despite large investments in the sector, China’s domestic gas production is stretched to the limit and has not kept up with consumption, increasing reliance on imports. These developments could make energy from renewable sources an incremental alternative for the future of China’s energy supply.
Ellen Carberry
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Beijing, Beijing Opera
the world’s largest smart power grid by 2020, including ultra-high voltage lines and distribution networks in urban and rural areas, remote monitoring, twoway communications and an electric vehicle (EV) charging infrastructure. China’s energy storage market continues to grow consistently. Using the potential of the expanding smart grid, this sector has the potential to improve the connectivity of intermittent renewables, such as wind and solar. Yet, high costs, unproven technology and a lack of governmental policy direction make storage a tough sell over the next few years, as CGTI reports.
Electric mobility on the rise China’s automotive market is the world’s largest and is growing rapidly. However, it will still be dominated by conventional vehicles for the next decade, as indicated by the CGTI
report. Yet cleaner transportation is an important element of China’s plan to reduce carbon emissions and use of fossil fuels. To improve fuel efficiency, China continues to raise conventional vehicle emission and fuel economy standards. In contrast, there have been few developments in the past year on biofuels. China focuses a strong policy support on electric vehicles, which has raised expectations for the growth of the EV industry in the country. Several companies have already taken the lead in the development of the battery-charging segment by building infrastructure for EVs across the country.
“Because of that problem, CGTI was created. The annual reports can be taken as a compass for understanding China’s rapidly changing greentech market.” The Chinese market could become more and more interesting for investors, notably from Germany. “China and Germany will become an economic intersection for the future,” Carberry says. “This is especially true for the mindset and the innovation power of both countries.” It is an opportunity not to be missed by German greentech entrepreneurs – especially in times of crisis. www.china-greentech.com
The Chinese greentech forest “China is like a vast forest, a vast ocean. It is a rapidly changing market, where information and relationships are not transparent,” explains Carberry.
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The CGA Team
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China Goes Abroad: Challenges and Opportunities ========================================================================
Europe has emerged as a key destination for Chinese outbound abroad. In the second quarter of 2012, the region received US$5 billion in investment – up from US$ 1.7 billion in the first quarter – and accounted for 48 percent of all mergers & acquisitions and 95 percent of all nonresources deals.
among investors in the People’s Republic of China (PRC): while some are seeking to increase their market share or procure a steady supply of raw materials, other investors are aiming to expand their knowledge base, acquire new technologies, expand their business scope and/or tap new markets for their products.
Indeed, Chinese companies are diversifying their investment profiles worldwide into a range of industries beyond the traditional outbound areas of energy and natural resources. This reflects the range of experience and goals
The challenges for outbound investors In undertaking an outbound investment project, Chinese companies and individuals are inevitably faced with challenges at each stage in its lifetime.
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These range from fundamental matters such as understanding the language and culture of the target jurisdiction, to complex matters such as how to work with local management personnel, how to finance business development, how to operate within the local legal framework, and how to resolve disputes. As with any area of business, the details of every transaction are different and present a unique set of issues to address. It is particularly critical to conduct solid due diligence at the beginning of a project, to understand the tax implications of an investment, and to have
access to knowledgeable consultants and legal advisors. As has been wellreported, it is also often the case that Chinese investment in foreign countries or new industry sectors face resistance by local officials or community groups. It is thus critical that new projects have the right government relations and public relations strategies, so that relevant stakeholders are informed and on board with the new Chinese partners.
Working towards a solution Jesse Chang, Managing Partner of the Chinese firm TransAsia Lawyers, has advised on PRC-related investments for nearly 30 years. While representing Chinese clients with regard to their outbound investment projects, Jesse realized that there was no comprehensive, convenient source of information for investors to consult about the questions and challenges that they face in “going abroad”. Together with his colleagues from TransAsia’s outbound investment practice, Jesse has launched
ChinaGoAbroad.com (CGA), a platform dedicated to providing practical, authoritative data to PRC investors. CGA was co-founded by TransAsia and the China Overseas Development Association (Association) under the National Development & Reform Commission (NDRC, the PRC ministry in charge of inbound and outbound investments). The Association joined the project after the NDRC decided that CGA’s website was not only useful, but was critical to the success of Chinese investments abroad. The NDRC’s endorsement of CGA followed the appointment of Mr Zhang Guobao as the new President of the Association. Mr Zhang was formerly the Vice Chairman of the NDRC and head of the National Energy Bureau. His appointment reflects the importance to the NDRC of outbound investments, and how CGA is aligned with the Association’s mission to support such transactions. CGA offers numerous services to outbound investors from China, including advice on making overseas trans-
actions from leading international services providers and information about industries worldwide that are of specific interest to Chinese investors. They also offer details of actual investment opportunities around the world, the ability to connect directly to service providers, and the opportunity to make connections during workshops, conferences and other events. The platform also enables service providers and industry experts to reach out to one another offline and form teams to support Chinese companies in “going abroad”. The provision of informative, reliable, and easily accessible information and advice in this manner is just one important way of helping Chinese investors to interact globally and encouraging outbound investment. www.chinagoabroad.com
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Chongqing, China
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The CGA Team
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China: Inbound & Outbound Investment ======================================================================== Opportunities for investment between China and Europe continue to abound, with European companies seeking to access China’s consumer market and build good relations with the world’s new economic power-house, and Chinese companies seeking to expand their knowledge base and diversify their businesses overseas. However, in both cases it is important to be well-prepared and thorough: while the financial newspapers are full of success stories and highprofile deals, in reality few achieve their full potential.
Setting the stage The central government in China has placed a significant emphasis on outbound investments as a sustained policy. In large part, this is due to the country’s need to secure a reliable and long-term supply of natural resources. To a lesser extent, it is due to swelling foreign exchange reserves and upward pressure on the Renminbi. Meanwhile, businesses, and even governments across the globe, are actively seeking Chinese investors to help bolster their economies, many of which are still recovering from the global financial crisis. Notwithstanding the explicit “Going Abroad” policy of the Chinese government, and the efforts that have been made to increase access to foreign exchange and streamline domestic
approvals, the outbound investment process itself remains complex, unpredictable and time-consuming. This is true of both the internal and external procedures required of Chinese investors. As a result, investments involving Chinese entities are often delayed, or fail altogether. Just as Chinese investors must anticipate this difficult approval process when undertaking projects abroad, their foreign partners are advised to study and understand it thoroughly. Meanwhile, even as political and economic reforms have opened up further opportunities to foreign investors in China, subtle shifts have taken place in the environment for companies seeking to invest in the People’s Republic of China (PRC). While the desire for foreign technologies and know-how remains strong, Chinese companies, government officials and consumers alike have become increasingly sophisticated and selective with regard to how, and with whom, they do business. For example, localization through training and overseas higher education is creating a strong, multi-lingual force of managers in Chinese companies. This has clear advantages for those companies as they explore investments overseas. It makes it easier for investors from outside China to interact with them; but it also means greater competition among foreign enterprises, experts and job-seekers in the PRC market.
Doing business internationally: be prepared and open-minded! To stand apart from the crowd and conclude transactions successfully, it is important for any investor venturing into a foreign country – including to or from China – to be well prepared. This sounds obvious and easy, but in practice demands focus and dedicated resources.
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Identify clear goals, and prioritize them. Select and identify the right opportunity: know your partner’s background. Make sure your company qualifies for the bid and/or meets local regulations.
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Think carefully about the market consequences both at home and abroad. Understand labor laws and employment regulations: do not assume that what applies in one’s home country will apply in the target jurisdiction. Become familiar with the local business environment, community, customs and practices. Be flexible and innovative – this will help you deal with issues you could not anticipate. Surround the project with good advisors.
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Patrik Lockne
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From “Made in China” to “Designed in China”:
China’s seven Strategic Emerging Industries ======================================================================== The Chinese government is hoping that seven Strategic Emerging Industries will generate 15 percent of Gross Domestic Product (GDP) by 2020. They are: alternative energy, biotechnology, information technology, advanced equipment manufacturing, advanced materials, alternative-fuel cars, and energy-saving and environmentally friendly technologies. Three of the seven are directly related to sustainability issues. This means foreign cleantech companies looking to China for sales or for Research & Development can expect a great number of policy changes.
First, the good news: companies in these industries can expect favourable tax policies, easier access to capital, increased willingness among stateowned enterprises to invest in solutions, and a welcoming attitude from local authorities who will eagerly compete to attract foreign investment and know-how. However, companies can also expect increasing Chinese competition, price pressure from local manufacturers, demands for technology transfer and perhaps even an increased risk of intellectual property rights violations as domestic companies scramble to compete. © Patrik Lockne
In March 2011, China announced its 12th Five Year Plan. The aim of the plan is to see China develop from an economy driven by investment and export of manufactured goods towards one that is more innovative and where domestic consumption drives growth. To achieve this, China will need to create consumer confidence by strengthening social security, make sure growth is more evenly distributed, and foster a new set of industries. A popular way of phrasing the change is to say the country wants to go from “Made in China” to “Designed in China”.
Beijing, China
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Li River near Guilin in southern China
It will be impossible to ignore the Chinese market, particularly for companies in new industries where standards have yet to be firmly set and established. Given the size of the Chinese market, what becomes a standard there could well become a global standard. The Chinese government, in contrast to some Western counterparts, can also afford to take a long-term approach to economic development. This is very beneficial in cleantech areas, where initial investment may be large and the returns some time away. Companies looking to do business in the Chinese market should do their homework. Try to get an understanding of what is happening in your specific industry. What policy tools will be used? What are the main companies and government agencies and how do they work together? What are the main challenges for China in this industry? What does China want to accomplish?
Once this is understood, the company should try as best possible to show how it can contribute. Demonstrate how your offering supports the direction China wants to take its economy. To which Strategic Emerging Industry does it correspond? How does it address the challenges there? An economic five-year plan may sound like an anachronism, but in an economy that is still dominated by state-owned companies, and where government actively directs economic development, they still play an important role. It will pay off to know what is in China’s plan.
About the Author Patrik Lockne has worked as a communications consultant since 1997, and was based in Beijing from 2006 to 2012. He helps clients in industries ranging from aviation to beverages with corporate communications and public affairs. He has also chaired the European Union Chamber of Commerce in the China Marketing and Communications Forum. He currently works as a PR consultant for the Swedish PR agency Springtime, which is part of the GlobalCom PR Network.
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Lost in
================================================================================= Interest is growing in inbound and outbound investment across continents, with European and Chinese companies discovering the market potential for their products and solutions abroad. Communication is becoming a key factor for success in a market where the proven methods and mes-
saging of the home market can hardly ever be translated 1:1. A campaign that has been a huge success in China might leave European customers totally puzzled, and vice versa. Many companies are faced with the challenge of adapting their marketing, PR and communications tactics
Wibke Sonderkamp
Marketing and Communications in Europe: 10 Dos and Don’ts
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In terms of culture and communication, there is no such thing as “The European Market” that so many companies are looking to cover today. You’re looking at 27 member states with 23 official languages and centuries-old cultural differences. It’s helpful to define a number of focus countries and expand the outreach step by step. Local expertise is key. It is advisable to define an umbrella strategy which is then locally adapted and executed in the European key markets. This would include preferences of customers, partners or investors in each market. Localization vs. translation: An ever-present challenge is the many languages in Europe. A professional local “translation” is therefore a critical success factor. Translators should understand the topic so they are able to grasp the meaning and message of the content. They should then transfer this into a local version which should be more than a pure translation and should take local aspects into account. This includes simple things such as text structure or popular buzzwords, as well as small content changes e.g. by including local angles or references.
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Communication channels and preferences differ from market to market. Ask your local partners to recommend channels; or whether you should choose between a print, online and social media focus, phone or e-mail contact or personal meetings vs. conference calls.
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Backing up brand value: editors in many European countries expect a lot more proof of marketing messages than, for example, in the USA. Make sure to include proven facts and figures, certifications or test results into the communication. Be prepared to be questioned about the proprietary claims and quality of your offerings. Although Chinese products have gained a lot of respect in certain industries, many consumers are still biased by years of reports of Chinese copies. Be aware that there is a growing consciousness regarding the sustainability of products among European consumers, who look into production conditions, materials, energy demand, etc.
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Don’t expect advertisement or brand campaigns to work 1:1 across continents. The audience’s taste as well as the signals and meanings of images, colors and messaging can be totally different in China than they are in Europe.
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Define clear goals and expectations with your clients or communications consultants in order to avoid unrealistic expectations and to focus on key targets.
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Work out a clear and transparent cost structure showing exactly what the budget includes and what it doesn’t. Unexpected extras are very problematic and can endanger the relationship.
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translation?
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Below are a few initial Dos and Don’ts provided by communications experts who help companies successfully bridge this communication gap in their every day work.
Patrik Lockne
Marketing and communications in China: 10 dos and don’ts
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Don’t treat China as a single market, treat it like a continent. There are large variations – more so than in all of Europe – both when it comes to purchasing power and knowledge about product categories and brands. Unless you have massive resources, focus on a narrow area, perhaps a single city.
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Chinese customers sometimes value your offering in a way that is different from what you are used to. Perhaps at home you discuss the total cost of ownership with customers – in China, upfront cost may be more important. Prepare to educate.
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Don’t expect to get free recognition by customers just because you have a foreign brand. It doesn’t impress Chinese customers the way it used to.
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The Chinese media market is huge and has a fragmented geography and readership. Don’t expect to advertise your way into the market, as it will be hard to reach a narrow audience through paid media. Focus instead on a strategy that aims to get your customers talking and influencing one another.
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Find out what government plans there are relevant to your product category. The Chinese economy is to a large extent directed by the state, so keeping abreast of regulations and policy will be important.
Don’t accept having to pay journalists to write. If you find you have to, you should rethink which journalists you are talking to, and if the news or information you offer is interesting enough. The same ethical standards on relations to media should apply to China as to other markets.
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Talk to your customers to find out what their needs and expectations are. Don’t be surprised if you have to adjust both product and messaging, as the Chinese market is often different to your home market.
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Communicate that you are taking the Chinese market seriously by selecting a good Chinese brand name, using highest-quality translations, localized photos, etc. Don’t just use material from somewhere else, it won’t be taken seriously.
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Take online and social media seriously. In a country as vast as China, online media offers good coverage, and Chinese internet users are very active in sharing their experience with products and services. It is necessary to have a strategy that takes this into account.
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Prepare to be copied. The Chinese market may call for special efforts to make sure customers can verify that the products they purchase are genuine.
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