Looking for an eco-friendly market
02/06/2002
(LAO TIAN)

What has been plaguing China‘s environment protection industry (EPI)? Why hasn‘t it bloomed despite its early promise?
EPI was born around the same time as the electronic, computer, petrochemical and household electrical appliance industries. But the "morning sun industry", as EPI is called, is miles behind these industries, which have since become the pillars of the national economy.
But didn‘t EPI witness a much higher growth rate than the national economy during the past decade?, experts said. In fact, it has grown by 15 per cent to 20 per cent in the past 10 years. Then why is its future tense?

Problems

China is undergoing a rapid economic development, hence neither market capacity nor technology shortage could be the major reasons for EPI‘s sorry condition, say experts.

China has a broad market for EPI. For instance, waste water drainage, estimated to be about 3.7 billion tons a day, has caused serious pollution problems. The only posssible way to solve the problem is to build waste water treatment projects.

Official statistics show that about 10,000 such plants are needed to treat even half of the waste water. And over 400 billion yuan (US$48.2 billion) is needed for their construction.

China is not strong in EPI‘s technology development and needs some key technology from abroad.

But some of the country‘s technology can be compared to advanced ones across the globe, such as the one to remove dust and to treat industrial pollution.

China is capable too of designing urban waste water treatment projects and manufacturing key equipment independently.

Inadequate fund

Lack of funds seems to be the biggest probelm facing China‘s EPI.

At present, foriegn aids and loans are the source of most funds for urban waste water treatment projects. Some foreign companies too have entered China to sell their technology and products.

The dependence on foreign investment and imported technology has seriously hindered the healthy development of China‘s EPI, or so it seems.

Of the 10,000 EPI firms in China, none can be compared to global giants.

Ineffective mechanism

The real reason for EPI‘s unhealthy development is the failure of the country to build a mechanism which would suit the market economy and could stimulate the industry‘s development, say experts.

China still doesn‘t have good enough policies and the market climate for its EPI to attract advanced technology and big global and domestic capital and talented personnel.

The market, usually a decisive guiding factor for an industry, is not playing an important role in the Chinese EPI‘s development, say experts.

Nowadays, most waste water treatment projects are built by governments and managed by their administrative organizations. Since local governments usually don‘t have adequate funds, they fail to maintain the projects‘ normal operations even if they are completed. Ultimately, the projects become burdens on the government.

Bad results

Governments at various levels, as the major investors in such projects, rarely give a good thought to costs and efficiency.

Experts calculate the standard investment for treating a ton of waste water to be between 600 yuan (US$72) and 1,000 yuan (US$120). But in China it comes to about 1,500 yuan (US$181) to 2,000 yuan (US$240).

Proposals

So how does one get out of the unhealthy circle and give the EPI an ideal climate for rapid development? This precisely is the most important topic for some experts and entrepreneurs today.

Experts said the tradition of relying on State finance for the EPI to develop should be replaced by a new and creative mechanism, capable of bringing all the positive factors into play and expanding the industry with funds raised from the market.

Wen Yibo, an environmental engineering industry expert, has proposed that the build-operate-transfer (BOT) method, popular in advanced countries, should be introduced into the construction and management of EPI projects in China. This means that the government wouldn‘t be the major investor in projects. The right for construction and management will be granted to enterprises which will recover the investment through collection of fees.

The BOT method could be used to speed up the construction and reduce costs, said Wen. According to scientific calculations, projects constructed and managed under BOT method are expected to cut down 40 per cent of the total investment, and the operation costs too will come down by 40 as much.

The BOT method will help the industry raise funds, too, through various channels from the market. This will in a way solve shortage-of-funds problem, the biggest the EPI has been facing, Wen said.

"If the BOT method is used widely, China will become capable of treating 50 per cent of its waste water in 10 years," he said.

Funds from market

Zhang Shiguo, a Beijing Huatai Securities expert, said small- and medium-sized firms, that comprise most of China‘s EPI, should try to raise funds from the market.

To attract funds from investors, firms need the following: advanced technology, standard management skills and high ability for resources allocation and market promotion.

To create a fine climate for EPI‘s development is an urgent task of the Chinese government, he said. For instance, a reasonable system to speed up and standardize the construction and management of the EPI must be devised. The present management method, under which various departments want to take a share of a project, has caused a lot of problems.

When a project starts, all local governments want it to benefit the local economy. Local construction companies in most cases are the project builders even if they don‘t have the ability or technical know-how to do so. Such protectionism should be stopped immediately, experts said.

The situation now

China‘s EPI has become a new growth area.

The industry‘s output value reached 108 billion yuan (US$13 billion) last year, 25 times more than that 10 years ago.

According to State Economics and Trade Commission statistics, about 10,000 firms are part of the EPI, that is, four times that of 10 years ago. And they employ 1.8 million people.

In China, the EPI started taking shape in the early 1970s. It continued on a very small scale for the next several years. Statistics show there were only 2,500 firms in the industry which had an output of 4 billion yuan (US$482 million) in 1992.

Since the 1990s, the Chinese government has tightened its environmental protection laws and encouraged investment in this industry.

Development potential

China‘s EPI has enjoyed a fast growth and will be in focus for investments in the next five years. About 700 billion yuan (US$84.34 billion) will be spent, said reliable sources, to improve China‘s natural and environment conditions in the next five years. This will undoubtedly boost the EPI‘s growth, experts said.

If the industry continues to grow at an average of 15 per cent a year during the Tenth Five-Year (2001-05) period, its total output value will reach 200 billion yuan (US$24.1 billion) by 2005.

About 55 billion yuan (US$6.6 billion) will come from production of environment protection equipment, 95 billion yuan (US$11.45 billion) from the comprehensive usage of resources, and 50 billion yuan (US$6 billion) from EPI‘s ancillary sector.

According to the Tenth Five-Year Plan (2001-05), ecological improvement and environment protection will play an important role in the domestic consumer market.

The sector is still not a key industry in China. But it has great development potentials and is an industry that has seen rapid development worldwide.

The industry is showing increasing vitalities and has become the key economic factor in the United States, Germany, Japan and Canada.

In China, EPI‘s development has not been satisfactory. The government does not have an overall plan to guide the progress of the industry, leading to blind development.

For instance, the State said power plant desulphurization programme was very important for technology renovation during the Seventh Five-Year Plan (1986-90). Demonstration projects were set up during the Eighth Five-Year Plan (1991-95) period and an overallimplementation plan was made during the Ninth Five-Year Plan (1996-2000). But the programme has not progressed as smoothly as expected because of lack of specific policies.

No wonder, experts want the government‘s role to be changed in the market economy. Efforts should be made to guide the industry towards a better, brighter future. Laws and policies must be promulgated or amended for market access and order, products‘ standards and industrial management.

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