Energy dimensions of China’s
urbanisation – business
opportunities and challenges
Energy dimensions of China’s
urbanisation – business
opportunities and challenges
By: Ran Guo, Ping Song, and Maarten Neelis
May 2014
Ecofys Project number: INTCN14511
© Ecofys 2014 by order of: Rijksdienst voor Ondernemend Nederland (RVO)
Summary
China has experienced a globally unprecedented urbanisation in the last decades. More than 700
million people live in China’s cities today, more than Europe’s total population. This report focuses on
one of the challenges related to China’s urbanisation process: how to ensure a well-functioning sustainable energy system for China’s cities. Using some key recent publications and in total sixteen
interviews with Chinese and Dutch people active in this area, this report provides some key facts and
figures related to the energy aspects of China’s urbanisation, identifies opportunities and challenges
for Dutch entities to become active in China and provides recommendations for market entry and
suggestions for policy makers to support this market entry.
Looking at some key facts, all energy related facts concerning China’s cities are huge as compared to
the Netherlands (having about the size of one Chine mega-city) and Europe. To give some examples:
the number of people living in China’s cities will be about a billion in 2025, 5 million cars are driven
in the city of Beijing already now and China alone consumes roughly half of the world’s steel and
cement to build the buildings and infrastructure for its cities. China’s government realises that strong
policies are needed to make sure it can cope with the rising energy demand of the urban population.
For each key sector (buildings, transport, industry, and energy supply) policies and measures exist in
the area of energy efficiency and renewable energy. The recent urbanisation planning towards 2020
for example contains proposed targets to increase the rate of renewables in the energy mix to 13% in
2020 and to have a share of 50% green buildings among all new buildings built by 2020.
Against this background, it is clear that the energy aspects related to China’s urbanisation offers good
opportunities for Dutch entities to do business in China. Energy is one of the Netherlands’ top sectors
and most, if not all, of the top consortia for knowledge and innovation formed under this top sector
have direct relevance to China’s energy challenge. Several companies already made the step into the
Middle kingdom and the Dutch and Chinese government already cooperate for years in the field of
energy. This report identifies a number of areas where Dutch companies could become successful in
China such as the integration of renewable energy technologies in the urban areas, low carbon design
of buildings, support in scenario analyses and target setting and waste to energy technologies.
Doing business in China comes, however, with significant challenges. It is, simply said, just not easy
to make money in China despite the huge opportunities. Cultural differences can be difficult to overcome, protection of intellectual property can be problematic, pricing of products and services and the
definition of a good business case is far from easy, it is hard to understand the role of all stakeholders involved and choosing the right city or region to focus on can be difficult as well. We recommend
any Dutch entity entering China to take enough time and to ensure quick on the ground presence in
China when attempting market entry. It could be beneficial to go together, to offer a total integrated
solution for a specific problem in a city and to make sure bring good demos or convincing reference
cases: Chinese like to see what they buy. Using existing initiatives such as those under the energy
i
cooperation between China and the Netherlands or the China European partnership on urbanisation
can limit initial costs and can be of help in choosing cities and regions to focus on. Last but not least,
think carefully about your business case. Despite the importance of good connections (guanxi) in
China, it is ultimately the business case that counts. Only if your product or solution provides value
for money, performs betters than competing concepts or contains unique properties, there is a
chance you will make it. If not, you will not be successful, regardless the number of diners you participate in or the amount of tea you drink.
The Dutch government offers many ways to support market entry in China via the Dutch embassy,
consulates and business support offices and under the cooperation agreement with the Chinese government. Our recommendations to the Dutch government are to focus the cooperation with the Chinese government on activities that are funded from both sides to ensure that there is mutual commitment to the cooperation and that the cooperation focuses on reals needs. The support to Dutch
companies should be as specific as possible (promoting specific solutions to specific problems rather
than focusing on broad cooperation themes) and should not stop after the initial match making, but
should include support to bring the connections made to actual business contracts.
Given the sheer size of the urbanisation process, China should be on the radar of anyone offering
sustainable energy solutions for cities. Good luck seizing the opportunities!
ii
Table of contents
Summary
i
Table of contents
1
2
3
4
iii
Introduction
1
1.1
A sustainable energy system: a key issue in China’s urbanisation
1
1.2
Objective – opportunities and challenges entering China
2
1.3
Approach and report structure
2
The energy dimension of China’s urbanisation
4
2.1
Some facts and figures
4
2.2
Important policy developments
2.3
Key stakeholders
11
2.4
China – Dutch cooperation and support programs
14
6
Opportunity and challenges for market entry of Dutch entities
18
3.1
Market opportunities
18
3.2
Challenges
21
Recommendations
24
4.1
Recommendations for business entry
24
4.2
Recommendations for Dutch government support
26
List of interviewees
29
iii
1 Introduction
1.1 A sustainable energy system: a key issue in China’s urbanisation
China has experienced rapid economic growth in recent years, driven by a globally unprecedented
urbanisation. It took six decades for China to expand the share of its population that lives in cities
from 10 to 50%, a transition that took 150 years to occur in Europe1. More than 700 million people
nowadays live in China’s cities, more than Europe’s total population.
To maintain economic growth in the decades to come, the new Chinese leadership foresees a continued role for the urbanisation process to enhance economic growth. It goes without saying that the
scale and speed of China’s urbanisation poses multiple challenges. How to ensure sufficient jobs for
the migrating population and how to avoid a widening income gap between the urban and rural population? Arguably the most prominent challenge of China’s increasing urban population is the increased
pressure on natural resources which are limited by definition. Air pollution levels in China’s cities
reached the international news headlines several times in the last years, and it does not require a lot
of imagination to understand the many challenges related to increasing water usage and changing
land-use patterns.
This report focuses on one of the scarce resources required for China’s cities: energy. We define the
energy dimension of urbanisation in this report as all aspects and developments related to the energy
demand and energy supply systems of China’s cities as well as the policies and measures influencing
this supply and demand system. From 1978 to 2010, China’s total energy use rose nearly five-fold
and in areas with urbanisation rates above 30%, energy use and emissions per capita are similar to
middle and high income countries2. At the same time, the urbanisation is also beginning to positively
contribute to a more sustainable energy system. The energy intensity per unit of Gross Domestic
Products (GDP) is declining and demand for energy efficiency and renewable energy solutions is
clearly rising over time. The Chinese government acknowledges the need to work on a more sustainable energy system and implemented a variety of policies and measures aiming to enhance this development. Also, Chinese consumers are increasingly aware of the importance of a clean and reliable
energy system to ensure they can live, work and enjoy life in liveable cities.
Both the Chinese and Dutch government acknowledge the importance of addressing energy issues for
a sustainable long term development of China’s economy. In 2009, China and the Netherlands signed
a Memorandum of Understanding (MoU) on Energy Cooperation. Under this MoU, several activities
have taken place. Also this study is conducted within the framework of this MoU.
1
UNDP: China National Human Development Report, 2013
2
Idem
1
1.2 Objective – opportunities and challenges entering China
There are obviously many uncertainties related to the future of China’s economy and China’s cities,
but, there is little reason to doubt that the trend towards a more sustainable energy system in China
will continue in the decade to come. This means a big and growing market for renewable energy,
clean fossil fuel and energy efficient technologies.
Many Dutch companies, academia and research institutes, have good technologies and knowledge in
these areas. Not without reason, Energy is one of the nine Dutch top sectors, identified as a
knowledge intensive, export-oriented sector that can provide solutions for global challenges worldwide. Several, if not all of the consortia for knowledge and innovation formed under the top sectors
have direct relevance to China’s energy challenge as sketched in general terms in this introduction.
Many companies and institutes already made the step into the middle kingdom, including knowledge
institutes (ECN opened a China branch in 2012), consultancies (this report was written in Ecofys’
Beijing office) as well as engineering and technology oriented companies (such as Royal HaskoningDHV and Grontmij). It is fair to say, however, that market entry in China is not always easy for Dutch
companies due to language barriers, cultural differences and a different business practice. Making
money in China is, simply said, just not that easy.
It is against this background that this report aims to:
1. Provide the reader with a high level overview of energy related issues regarding China’s urbanisation process including some facts and figures, the key issues at stake, the most relevant policies and an overview of important public and private stakeholders involved and their
roles.
2. Identify opportunities and challenges for Dutch entities to get involved in energy related activities around China’s urbanisation process and summarise available support programs for
these entities
3. Provide recommendations for market entry for Dutch entities and identify concrete suggestions for policy makers on efficient support mechanisms to effectively help Dutch business entities to enter the Chinese market.
The report is targeted towards Dutch entities (companies, academia, knowledge institutes) considering to become active on the Chinese market and for Dutch government officials (both in China and in
the Netherlands) considering further support activities to help Dutch entities to enter the Chinese
market.
1.3 Approach and report structure
In writing this report, three sources have been used:
2
•
A limited number of studies on China’s urbanisation process in order to provide some key
facts and figures on the energy dimension of China’s urbanisation.
•
Interviews with 16 experts (listed in Annex A), both Chinese and Dutch, selected in consultation with the Dutch Embassy in Beijing and the Rijksdienst voor ondernemed Nederland
(RVO). In the interviews, the interviewees were asked questions on the relevance of the energy dimensions for China’s urbanisation process, the role of the various actors involved and
the opportunities for Dutch and other Dutch companies to get involved in this process.
•
Own insight and experiences of the authors.
This report is structured as follows. In Chapter 2, we provide some facts and figures on the energy
aspects of China’s urbanisation process and an overview of some relevant policies. Also, we summarise important stakeholders involved and give an overview of existing support mechanisms. This
mainly supports the first objective as given above. In Chapter 3, we zoom in on the opportunities and
challenges for market entry of Dutch companies, addressing the 2nd objective. In Chapter 4, we draw
conclusions and give recommendations to entities considering market entry and to policy makers for
design of effective support mechanisms.
It should be noted that the scope of this study has been limited both in terms of the timeframe and
resources used to write it. As such, the report does not aim to provide a complete, scientific overview
of the energy aspects of China’s urbanisation nor does it aim to be complete in terms of identifying all
the opportunities and challenges. The authors nevertheless hope the report provides food for thought
for Dutch companies considering entering the Chinese market and for policy makers aiming to support the business opportunities for Dutch companies.
3
2 The energy dimension of China’s urbanisation
This Chapter provides a brief overview of some facts and figures related to the energy aspects of
China’s urbanisation, the key policy trends as well as a short history of the Dutch Chinese cooperation
in this area and available support programs.
2.1 Some facts and figures
Urbanisation and economic growth have gone hand in hand over the last 30 years in China. China’s
urban population increased from 22% in 1983 to 53% in 2012 (Figure 1). China had 711 million urban residents in 2012, up from 321 million 30 years ago. Still it is expected that 350 million people
will migrate to cities in the coming years3, and it is expected that by 2025, the urbanisation rate will
be as high as 67%4, resulting in about a billion Chinese living in cities.
Figure 1 Urban and Rural Population in 1983, 1993, 2003 and 20125
China’s population grew with nearly 7% between 2002 and 2012, while energy consumption grew by
about 150% in the same period, indicating a massive increase in per capita energy consumption driven by the often double-digit economic growth. The Chinese government has been investing heavily in
3
The World Bank: Sustainable Low-Carbon City Development in China, 2012
4
McKinsey Global Institute: Preparing for China’s Urban Billion, 2009
5
National Bureau of Statistics of China (http://data.stats.gov.cn/index)
4
renewable and clean fossil energy as its tries to lower its dependence on coal, but traditional energy
like coal and oil still dominate the energy source in China (Figure 2).
Figure 2 China’s primary energy consumption by fuel type in 2000 and 20126
China faces severe challenges in its energy supply, partly because of unbalanced distribution of energy resources. The nation’s energy flow is featured by large-scale, long-distance distribution of energy.
This is because of unbalanced distribution of energy resources: coal and gas are mostly found in the
northern and north-west regions, while a large proportion of proven oil reserves are found in the
Eastern coastal areas. The major energy consumption takes place on the East coast where most people live and most money is made.
There is no real standardized accounting method to calculate the energy consumption of China’s cities
and a good summary of the energy use in China’s cities is therefore difficult to make.
However, the limited data available make clear that China’s cities and the consumption in these cities
are responsible for the lion share of China’s energy consumption and are responsible for larger part of
the energy consumption increase observed. A study conducted by WWF estimated the energy use of
the year 2006 in the top 100 cities. The study indicated that the top 100 cities accounted for 43% of
the total energy use, 42% of the electricity consumption and more than 75% of natural gas and LPG
consumption.7 In total, the per capita household energy consumption in China more than doubled
between 1985 and 2011 from about 1,200 to 2,589 kg of coal equivalent8.
The massive energy consumption related to China’s urbanisation becomes also clear when looking at
the key buildings materials. China consumes about 50% of all global cement and steel to build 2 bil-
6
National Bureau of Statistics of China (http://data.stats.gov.cn/index)
7
WWF China: Explore the Pathways for the Development of low carbon cities in China, 2011
8
UNDP: China National Human Development Report, 2013
5
lion square meters of new area, accounting for about half of the newly built buildings of the whole
world.9
The transportation industry consumed about 133 million oil equivalent in 2005, which accounted for
41% of total oil consumption (i.e. 16% of gross energy use) 10. By the end of 2012, 240 million motor
vehicles were in circulation, including 120 million cars. In Beijing alone, the number was over 5 million by January 201211. As one of the interviewees made clear: own car use is still seen as a status
symbol, needed to impress the neighbours. Considering the actual necessity to have a car starts to
take place only after you have shown that you can actually afford your own car, explaining why, despite the many stringent actions taken by China’s cities, it has not yet been possible to curb the trend
of private car use in China.
The increasing use of (mainly fossil based) energy has resulted in cities suffering from energy shortages and energy related air pollution is nowadays seen as the main direct environmental problem for
China’s cities, not only for megacities like Beijing and Shanghai, but also for the many smaller city
clusters in China. In the interviews conducted in writing this report, it became clear that without exception, all think that the energy system of cities will be given quite some priority in the future urban
development. As one of the interviewees pointed out: the urbanization process needs to come up
with an integrated solution to address the energy issue.
2.2 Important policy developments
Urbanisation has been a major theme in the last five year plans that form the basis for China’s policies12. The most recent 12th five year plan emphasises the importance of cities for China’s further
economic growth, but also tries to address the many challenges related to urbanisation and includes
targets for a more balanced urban development. The government realized that cities should be well
planned to meet all these challenges. As announced in a recent Central Committee meeting, a national new urbanisation planning was launched in March 2014 (key points relevant to energy listed
below).
9
WWF China: Explore the Pathways for the Development of low carbon cities in China, 2011
10
WWF China: Explore the Pathways for the Development of low carbon cities in China 2011
11
UNDP: China National Human Development Report, 2013
12
See for an overview: UNDP: China National Human Development Report, 2013
6
National New Type Urbanization Planning (2014-2020): Energy Dimension
Some historical facts
1978
2013
Urban population (million)
170
730
Number of cities
193
658
Number of towns
2173
20,113
Urbanization rate (%)
17.9
53.7
Future planning
Key message:
The traditional industrial path of urbanization, relying on high input, high consumption and high
emission is not sustainable;
Proposed targets and indicators:
2012
2020
45
60
Rate of public transport (in cities with
population over 1 million)
Rate of renewables in energy use (%)
8.7
13
Rate of green building in new buildings (%)
2
50
Counties and key towns’ infrastructure improvement focus: Gas heating---construct more natural
gas pipelines (including coal-bed methane); Liquefied Natural Gas stations; district heating facilities; develop large-to-medium sized methane, biomass gas and geothermal energy where appropriate; coal shall gradually be replaced by gas. Distributed energy---distributed energy should be
prioritized in urban construction and renewal.
Municipal utilities: building safe, reliable and well-managed new distribution network; accelerate
constructing urban clean-energy supply infrastructure; improve the gas transmission and distribution, storage and supply systems; develop cogeneration and eliminate small coal-fired boilers.
Focus areas in building Green Cities:
Green energy: construct new energy pilot cities and relevant distributed energy areas; pilot
smart micro grid engineering; pilot renewable energy for heat in counties; green energy county
construction;
Continued on next page
7
Continued from previous page:
Green building: heat metering and energy saving projects in existing buildings; public buildings,
subsidized buildings shall be align with green building standard and certified;
Green transport: develop new energy, low-emission and other environmental friendly cars; build
more charging stations, charging piles and gas stations;
Smart cities:
Intelligent infrastructure: energy performance should be linked with building facilities; Innovative
city, smart city and low carbon city pilots shall be further pushed;
Sino-Europe urbanization partnership shall be strengthened
Foster and further develop China’s city clusters in the west
Source: http://news.xinhuanet.com/house/wuxi/2014-03-17/c_119795674.htm
In China’s institutional setting, local government leadership responds directly to quantifiable indicators for which they are held accountable by higher authorities. The energy related targets in the 12th
Five-Year Plan are to reduce carbon intensity per unit of GDP by 17% and the energy intensity by
16%. This will provide a strong administrative impetus for the formulation of local low carbon and
energy efficient development strategies. The aggregated targets are translated to the level of individual regions and cities and are surrounded by a wide range of policies addressing the individual sectors.
Without having the illusion to be complete, we here give an overview of the key policy trends by sectors13. China will put much effort in developing the next generation of nuclear energy industry, solar
thermal and photovoltaic solar thermal power, wind power technology and equipment, smart grid and
biomass. Distributed energy system will be further developed and promoted nationwide. The energy
market will gradually be liberalised with more market freedom and market based policy instruments
will play an increasing role. Business models like Energy Service Companies (ESCO’s) will become
more common in power supply market.
For industry sector, overcapacity will be cut, including industries like cement, steel, glasses, electrolytic aluminium etc. China initiated and will continue to promote energy-saving programs in the top
10,000 energy-consuming enterprises nationwide by setting goals and periodical monitoring. Carbon
emission trading is implemented gradually in China, including the major cities of Shanghai, Beijing,
13
Outline Of 12th Five Year Plan, http://www.gov.cn/2011lh/content_1825838.htm, 2011
8
Tianjin and Shenzhen. At the time of writing, six pilots among seven have already started greenhouse
gas emissions trading. Earlier, the State Council issued an Opinion on Promoting Service Industries in
2007 to support the 11th FYP’s target of having a five % increase in GDP from the service industry by
2010 compared to 2005. Many provinces have taken measures to foster development of local energy
efficiency service entities to undertake critical market functions as energy auditing and testing, consulting, energy efficiency technology dissemination, energy efficiency project design and appraisal,
project construction management and maintenance, training, detailed energy use monitoring tasks,
and assistance in arranging project financing.14 Also, the business model of EPC (energy performance
contracting) has been widely used in industrial energy efficiency projects.
In the built environment, China was among the first developing countries to introduce mandatory
Building Energy Efficiency Codes (BEECs) and has achieved significant success in compliance enforcement. Existing residential BEECs in China cover large urban residential constructions in three
distinct zones: cold and severely cold zones, a hot summer and cold-winter zone, and a hot-summer
and warm-winter zone. 15 According to one interviewee, a lot of public infrastructure buildings are
subject to compulsory energy efficiency standards. Advanced construction methods, new materials
and new, intelligent technology are promoted to be applied in this sector. Gradually also the retrofitting of buildings will become more important.
The public transportation system will be given priority. Much effort will be made to raise the public
share of transport by improved urban public transportation system. Urban transport system will be
linked with rural systems in future design and upgrading. New energy vehicles are described as “strategic
new
energy
industry”
in
the
government
plans,
with
priority
of
developing
plug-
in hybrid electric vehicle, blade electric vehicles (BEV) and fuel cell vehicles (FCV).
Worthwhile mentioning is also the China’s concept of having pilots to test new ideas and concepts. In
the context of this report, two of these pilots are relevant to mention, the low carbon city pilots as
well as the national smart city pilots.
Since the low carbon city pilots were raised jointly by MOHURD and WWF in 2008, the concept has
been spread quickly and supported by central government. Until the end of 2012, 36 pilots were
identified in most provinces including cities such as Hangzhou in Zhejiang province, Shenzhen in
Guangdong Province, Nanchang in Jiangxi Province, Baoding in Hebei Province, and Xiamen in Fujian
Province. The government issued some policies and measures geared to support the pilots, although
it is not easy to find a good overview of those. Many other cities have compiled their own low carbon
city strategy even though they are not listed in the pilots. Most of the interviewees were in favour of
this concept and the initiative, although the real output is not yet tangible and accusations of window-dressing with one green building or a single above-average building standard make a city low
carbon can also be found.
14
The World Bank: Sustainable Low-Carbon City Development in China, 2012
15
Source: Idem
9
To give one example, the low carbon city pilot in Shenzhen was launched in 2009 by MOUHURD and
the Shenzhen Municipal Government. Both agreed to develop plans for low carbon industry and public
transportation, green buildings, more efficient resources utilization etc. In 2010, the government
identified four areas of focus: improve the industry and energy structure, develop innovative capacity
and strengthen the legal environment for low carbon planning. Following that, the government developed an eight step plan:
1. Based on the low carbon strategy, the government shall start to make a low carbon mid-tolong term development plan;
2. The development of a legal institutional system to support low carbon economy shall be prioritized;
3. A low carbon development assessment system shall be set up as soon as possible;
4. A relevant marketing approach shall be researched;
5. Investment in the low carbon economy shall be increased and the development and utilization
of new technologies should be supported;
6. The energy structure shall be optimised;
7. More effort shall be made in energy savings and emission reductions;
8. Achievements shall be advertised16;
The Shenzhen International Low Carbon Zone (illustrated in 2.4) was developed under the background of Shenzhen as low carbon city. Hangzhou city is another pilot started from 2009. The city
aims to reduce carbon intensity by 35% by 2015 and 50% by 2020 compared to a 2005 baseline.
The city developed several low carbon emission campaigns in a bid to become a model low carbon
city. One of the initiatives cost about RMB 300 million in establishing a public bicycle rental system,
including 50,000 bicycles in 2,000 rental spots, to reduce its reliance on cars. In addition to promoting non-motorized transport, the length of the metro system will be extended to 278 kilometres, the
modal share of buses is planned to exceed 50%, and 25% of the bus fleet will be energy efficient17.
These examples show that certainly a lot of good things develop under the low carbon city pilots but
that the focus and results achieved can come across as rather ad-hoc and exemplary without a very
clear guiding principle behind the pilots.
The more recent idea of smart cities is a bit similar. Since IBM issued “Smart Cities in China” in 2009,
China had chosen 193 ”National Smart City Pilots” till August of 2013. However, without specific work
plan, management tools and adequate staff, the effect is far from convincing. One of the interviewees
is critical and said it is a showy project for local government officers, who are totally not aware of
what a smart city means. Another interviewee said it is even not possible to judge the effect because
there is no specific objective or standard available. Ideally, further work in this area should be started
16
WWF China: Explore the Pathways for the Development of low carbon cities in China 2011
17
The World Bank: Sustainable Low-Carbon City Development in China, 2012
10
with a clear identification of the problems and weakness to find out the right smart solutions that
might work18.
It is clear that the various policy instruments have different aims and expectations and it is obviously
difficult to predict the future policy direction for China. However, given the overall trends as sketched
in this chapter, it is likely that the coming decade will see continued and increased policy pressure to
drive the cities towards a cleaner, more efficient energy system.
This was also confirmed in the interviews conducted in this study confirming the need for cities to
make a clear longer term energy strategy and a practical plan to achieve it. This would cover more
stringent rules, specific objectives and work plans, and adequate technology and management skills
as well. This will, without doubt, continue to give good opportunities for international enterprises to
explore the Chinese market with clean energy and energy efficiency solutions.
2.3 Key stakeholders
At the national level, the key ministries involved in the energy system planning are:
National Development and Reform Commission (NDRC): the NDRC is an overarching, comprehensive government sector. The official level of NDRC is equal with Ministry, but in reality the NDRC
is for sure more influential than any other Ministries. NDRC is not only the coordinator of basically all
other ministries, but also the final decision maker. Major energy related decisions are issued through
NDRC. NDRC makes strategic plan for the nation, and approves or rejects project applications. NDRC
has direct influence on any major projects in provincial or city level. The National Energy Administration (NEA) is a subordinate of NDRC. NEA’s responsibilities include drafting energy-related legislation, national energy planning, monitoring energy market (including electricity), examination and
approval of energy projects etc.
Ministry of Housing and Urban-Rural Development (MOHURD): MOHURD makes the urban and
rural construction plans and issues relevant policies, and ensures the implementation of the policies.
It establishes and issues construction engineering standards, is responsible for building energy saving
and emission reductions, and supervises and implements major energy saving programs. It also coordinates international cooperation on these issues. MOHURD is one of the main impellers of urbanization and sponsored low carbon city and smart city initiatives with the NDRC having a wider role of
integrating this into the overall policy direction.
Ministry of Transportation (MOT): MOT is responsible for the transportation planning and the
drafting and issuing of transportation standards, policies, as well as monitoring the implementation of
18
Chinese Academy of Science (CAS) Institute for Urban and Environmental Studies: Smart Low Carbon Development of Cities in China,
2013
11
such policies and standards; MOT provides suggestions for national investment on transportation
systems, supervises and monitors intelligent transportation plans as well carbon emission reduction
plans for the transport sector.
Ministry of Industry and Information Technology (MIIT): MIIT is responsible for the national
industry development planning, drafting the industrial policy, setting standards and ensuring their
implementation. MIIT also examines and approves industrial investment projects, promotes new
technology, material and equipment etc.
Ministry of Environmental Protection (MEP): MEP is responsible for drafting environmental legislation, policy, standards and ensuring their implementation. MEP organises ecological/environmental
protection plans, monitors environmental performance in line with the standards, advises on environmental equipment investments etc.
The Chinese government makes decisions mainly based on input from their think tanks. Each government sector has its think thank who act more or less directly under the relevant ministries. Examples of such think tanks include the Energy Research Institute (ERI) and the National Strategic Centre
on Climate Change (NSCS) under the NDRC, the MOHURD research centre under MOHURD and Chinese Academy of Transportation Sciences under the ministry of transport. The task of these think
tanks is to provide policy design support, a bit similar to the role of institutes such as the Energy
Research Centre (ECN) and the Netherlands Environment Assessment Agency (PBL) in the Netherlands. They are government financed and normally follow the line and direction as stipulated in the
government policy.
At the provincial level, the governmental set-up as sketched above is mirrored from the national level. Provinces and the big cities have for example their own DRC (the Beijing Development and Reform
Commission for example) and also they are supported by municipal think tanks.
In the context of energy aspects of urbanisation, also the city mayor (or provincial head) is important as was also stressed in one of the interviews and is also apparent in the Shenzhen case study
described below where the vice-mayor had an instrumental role driving things forward. The departmental officers, such as the head of city transport department are genuinely governed by the mayor.
Under the pressure of climate change, the city mayor often takes responsibility and is accountable for
the task of cutting energy consumption and carbon emission in his/her city. Many big projects are
discussed by varied departments, but the mayor’s decision is final. The other position in the city
equally important is municipal party secretary, which could be even more powerful in some cases.
State-owned enterprises (SOEs) are also important stakeholders in the national policy making
process and in the process of urbanisation. Monopolies like SINOPEC and the State Grid control the
national energy supply in their own fields. Their CEOs are often designated by the central government. In some occasions the SOEs also take the role as the government. For example, the electricity
relevant projects, such as waste heat recovery for electricity, need to be approved by State Grid. For
any international companies to enter Chinese market, as recommended by one of the interviewees,
12
SOEs can be very good partners and the least, when entering the market, it is essential to understand which government institutes and SOEs play a role in the business you are going to operate in.
The Big 4 state-owned banks, namely Bank of China (BOC), Industry and Commercial Bank of China
(ICBC), Agricultural Bank of China (ABC), and China Construction Bank (CBC) account for most of the
loans for projects in China. Their business is kind of indicator of regional economy. To get along with
at least one of the banks is quite favourable to/for at least the bigger energy related investments in
China.
Let us give two examples on how the decision making typically works at the local level for municipal
city planning projects and for investments in large energy investment projects:
For overall city planning, the decision making process will involve local NEA, local MOHURD and local
MEP as explained in the below figure:
Local DRC released a
tender for city planning
Local planning
institutes will bid for
this tender
DRC will invite local
NEA, MOHURD and
MEP to review and ask
questions in bids
evaluation &
consultation meeting.
DRC will make final
decision based on input
from review meeting.
Mayor: coordinates the whole process and play a key role in final decision
Several interviewees indicated that within the city planning, the energy planning is one of the most
challenging issues. Obviously the energy system planning needs to be integrated into spatial planning,
layout planning and environmental planning, which requires extensive stakeholders’ engagement at
the local level. However, institutional vertical line management within ministry towards the national
government makes coordination and interaction among different local ministries difficult. For example,
the local MEP mainly report to the national MEP and as a result will have difficulties coordinating with
local NEA and MOHURD.
Foreign companies can partner with local planning institutes in the bidding process. Direct pitching
with local government body i.e. local NEA or MEP is very difficult.
If we look at the planning of big energy investment projects one can distinguish the following steps:
step 1, concept proposal submitted and approved by DRC; step 2, environment impact assessment
(EIA) and energy assessment (EA) by third party; step 3, land use approval, EIA approval, site selection approved; step 4, detailed proposal (feasibility study) approved by DRC; step 5, building permit
and construction draw permit; step 6, kick-off.
13
These two examples show that in city planning and project planning, many local actors play a role. In
the Shenzhen example elaborated in the next paragraph, this is also apparent with various government bodies (Shenzhen Development and Reform Commission; General office of the Shenzhen municipality ; the vice mayor), government related institutes (International Academy of Low Carbon
Development ; Shenzhen Institute of Building Research), and state-owned companies (Shenzhen
Energy Corporation) each playing its specific role.
Generally speaking, the role of the government in the planning of especially the large energy related
investment projects is far bigger compared to the situation in the Netherlands. Various links exist
between the governments, the various state-owned companies involved and the various advising
bodies. The interviews made clear that it is essential to understand these often complex relations
when attempting to do business in China, especially when it relates to large urban planning related
investment projects.
2.4 China – Dutch cooperation and support programs
In 2009 China and the Netherlands signed a Memorandum of Understanding (MoU) on energy cooperation. Signatories are the Chinese National Energy Administration (NEA) and the ministry of Economic Affairs of the Netherlands. NL Agency (now RVO) was the implementing body of the MoU on
the Dutch side, on behalf of the ministry of Economic Affairs. The representations of the Netherlands
in China, such as the embassy in Beijing, are important partners in the implementation of the MoU.
One of the aims of the MoU for the Dutch government is to facilitate market entrance in China for
Dutch energy related businesses and knowledge institutes. This is achieved through Sino-Dutch activities such as study visits, seminars and matchmaking events, joined by government, industry and
institutes from both China and the Netherlands. Seven themes were identified for further cooperation:
1. Solar,
2. Smart grids
3. Gas
4. Industrial efficiency
5. Efficiency in the built environment
6. Bio energy
7. Offshore wind
One Sino-Dutch cooperation with relevance to this study relates to the “Shenzhen International Low
Carbon Zone”. The cooperation in Shenzhen is summarised below.
14
Shenzhen International Low Carbon Zone
Background: the concept of Shenzhen low carbon area was raised in the cooperation between
Delft University of Technology (Delft UT), Harbin Institute of Technology Shenzhen Graduate
School (HITSGS) and some other relevant partners in 2010. The municipal government was attracted by the idea and requested a government to government (G2G) cooperation on an International Low Carbon City in the Longgang district of Shenzhen. In September 2011, a G2G project was started by NL Agency to support the Dutch Government in establishing collaboration on
a Sino-Dutch low carbon zone in Shenzhen. Involved government bodies are the consulate in
Guangzhou, the Ministry of Economic Affairs and the Ministry of Infrastructure and the Environment. Also the municipalities of Almere, Amsterdam, Delft, Eindhoven, and Rotterdam are involved as well as around 30 knowledge institutes and companies.
Original objective: to set-up a Sino-Dutch cooperation framework for a joint approach for the
development of a “low-carbon zone” in Shenzhen with the involvement of the Dutch government
as well as companies and research institutes. The project of the low carbon zone itself was not a
bilateral project, but was initiated by Shenzhen as part of the low carbon city pilot activities. In
2012 it was decided to shift the focus to city-to-city-relations, involving Amsterdam, Almere and
Eindhoven and also not just to concentrate on the area of Pingdi, but to build upon a broad relationship with Shenzhen (i.e. with regards to similar activities in other areas of Shenzhen as well).
Activities so far:
In the context of this cooperation, large Shenzhen delegations visited the Netherlands two times
in 2011 to get acquainted with the Dutch counterparts and to get an introduction to low carbon
solutions in the Netherlands. This was followed by two expert meetings in Shenzhen on low carbon city planning and the development of a low carbon master plan. Following a change in responsibility at the Shenzhen side, two more visits have been organized in the Netherlands. Recently most attention went to cooperation between Amsterdam and Shenzhen to develop waste
to energy technology in Shenzhen based on the examples in Amsterdam. In 2013, a number of
MoU’s have been signed with Dutch cities (Amsterdam, Eindhoven, and Almere) and companies,
resulting also in a first contract for TNO.
In the interviews conducted in Shenzhen and with key parties involved in the cooperation as part of
this project, it became clear that many of the challenges encountered when doing business in China
were also encountered in this cooperation. Although expectations were high, it has proven difficult to
bring the cooperation from the initial matchmaking visits closer to actual business, expectations (e.g.
on direct foreign investment resulting from the cooperation) were not always understood although
they were sometimes clearly communicated, and cultural differences in communication style were
experienced throughout the project. For the Dutch parties involved, it is not always clear how decisions are made on the Chinese side and what the role is of the various companies, governments and
15
government related institutes. The project also suffered delays due to e.g. a lack of interest at the
side of local investors in the project overall.
Also the project suffered from a change in responsibility at the Shenzhen side which shifted from the
General Municipal office to the Shenzhen Development and Reform Commission. As a result, some
agreements that were the result of the meetings in 2012 lost their value. Still, due to the many exchanges during the project so far, a good basis has been laid for possible further activities in the future and the cooperation Shenzhen is also one of the flagship projects under the China European
Union partnership on sustainable urbanisation described below.
Similar experiences were encountered in another Sino-Dutch cooperation program named “China
western small city environmental infrastructure economical and practical technology and demonstration project” brought up in one of the interviews. The program was kicked off in 2002 and ended in
2008. The implementation partner of China was technology department of MOHURD. According to the
partner in MOHURD, the Dutch government invested 15 million Euro in the program. The main activities included a study tour, technical support, training, onsite coaching, etc. One of the interviewees
said the outputs of the program itself were impressive, and technically successful, but the program
did not result in a further uptake of the technologies and further business opportunities were not
developed. Reasons included the lack of priority given to this in the region concerned, the price of the
technology which was regarded as too high and the fact that some projects failed to conform to rigid
technical standards. To summarise, the technologies were not really localised into the Chinese market. Next to the cooperation in the MoU, the Dutch government provides also other forms of support
to business entering the Chinese market:
•
The Partners for International Business program, supporting groups of companies to enter a
new
market
together
(http://www.rvo.nl/subsidies-regelingen/partners-international-
business-pib)
•
Information
and
advise
on
doing
business
in
China,
as
offered
via
RVO
(http://www.rvo.nl/onderwerpen/internationaal-ondernemen/landenoverzicht/china
•
Subsidies
for
demonstration
projects,
feasibility
studies
and
knowledge
acquisition
(http://www.rvo.nl/subsidies-regelingen/subsidieregeling-voor-demonstratieprojectenhaalbaarheidsstudies-en-kennisverwerving-dhk)
•
Support via the Dutch representation in China. The Netherlands’ embassy is located in Beijing
with consulates in Shanghai, Chongqing, Guanzhou and Hong Kong and business support offices in six other cities.
Due to the importance of urbanization and China’s market status, international donors, the Netherlands is not alone in showing interest in the Energy aspects of China’s urbanisation. In May 2012, The
European Union and China signed a joint declaration on the EU – China partnership in Urbanisation,
outlining 14 areas of cooperation in the field of urbanisation between the EU and China, a summarised in the box below. Also organisations such as the World Bank, the Asian Development Bank, GIZ
as well as major NGO’s such as the World Resources Institutes (WRI), the World Wildlife Fund
(WWF), and the Energy Foundation (EF) all have dedicated programs focused on China’s urbanisa-
16
tion. Finally, the Clean Development Mechanism has supported technology transfer related to energy
from Europe to China.
EU China Cooperation
China and Europe started overall strategic cooperation in the area of urbanization since leaders
from both sides declared their support for a China-EU sustainable Partnership on Urbanization in
February 2012. On May 3rd 2012, the High Level Conference of China-Euro Partnership on Urbanization was held in Brussels in which Premier Li Keqiang and president of European Committee Barroso jointly signed the Joint Declaration on China-EU Partnership on Urbanization.
Proposed cooperation areas in the Joint Declaration:
1. the development strategy and policy of urbanization
2. the space layout of urbanization
3. the sustainable development of urban industrial economy
4. the urban public service system
5. the investment and financing mechanism of city infrastructure construction
6. the urban housing supply system and mode
7. the management of urban energy supply and demand
8. urban transportation, public transportation and intelligent transportation
9. urban green building
10. urban ecological environment protection and management
11. the protection of the urban historical and cultural features city and the shaping of the
landscape
12. the urban governance
13. the integration of urban and rural development
14. the exchange seminars and staff training of urbanization
Activities
Activities taking place under the partnership include the organisation of an annual urbanisation
forum, the set-up and signing of cooperation partnership including the Shenzhen international
low-carbon city, and the set-up of a steering committee and office to guide the partnership. Both
sides agreed to fund the partnership based on more detailed work plans. The web-site of the
partnership gives a good overview of the activities and the project office can be a good starting
point for those searching for cooperation possibilities in China.
Source: http://www.ceuc.org.cn/en/index.php
To sum up, there is a wide range of programs dedicated to energy aspects of China’s urbanisation
done or undergoing supported by foreign governments, NGOs and international institutes. The information available around these programs can be a useful source of information to get a grip on the
developments in various regions of China, the type of activities employed by others and the various
institutes involved.
17
3 Opportunity and challenges for market entry of
Dutch entities
China issued a National New Type Urbanization Planning (2014-2020) in March of 2014. The document states that the traditional industrial urbanization, featured with high input, high consumption
and high emission, is not sustainable. It reinforces how likely it is that there will be a growing market
for clean energy and energy efficiency solutions in China in the decade ahead. In the interviews,
many opportunities for Dutch companies were mentioned which are summarised in this Chapter,
complemented with findings from desk research and the authors’ insights.
3.1 Market opportunities
Regarding the energy policy, the opportunities for domestic companies and foreign companies are
basically the same, except some special fields only for state-owned enterprises. For Dutch companies
some specific fields of interesting business opportunities are listed in the following table.
Examples of business oppor-
Sectors
Summarising trend
Energy Supply
The Chinese government will
The Netherlands typically scores
continue to invest heavily on
well on new innovations in the
renewables in order to achieve
renewable energy field with
their ambitious goal of 15% by
China having the ability to rap-
the end of 202019. More effi-
idly commercialise them. This
cient use of fossil fuel and the
opens quite some field for coop-
use of waste to generate elec-
eration20:
tunities
tricity will also get attention.
Wind power
- Technologies specific to overcoming lower wind speed;
- Integration of wind power into
regional portfolio, improved
forecasting technologies, remote control
- Urban wind turbines and integration wind power in urban
19
Source: National Energy Administration, 12th Five-Year Plan of Renewable Energy Development
20
Source: Azure International (2013): Opportunities for Dutch Clean Energy Companies in China
18
Sectors
Examples of business oppor-
Summarising trend
tunities
landscape
Solar energy
- Research on advanced solar
photovoltaic. Collaboration
through the Netherlands’ research base, in connection with
companies or research institutions in China
- Distributed PV projects under
Golden Sun policy
- Integration of solar technology
in integrated building design
Smart Grids
- Demand side management
technologies
- Data management and visualization at municipal and provincial level;
- Energy storage technology
Bio-energy
- Biomass to electricity projects
- Flue-gas cleaning projects,
- Research on cellulosic ethanol
and algae-based biofuels
- Sustainability criteria for biomass
Electricity from Waste:
- Municipal waste incineration
for power projects
- Kitchen waste treatment for
power projects
Clean fossil fuels:
-Natural gas technologies
- Efficient fossil fuel conversion
technologies (boilers, combined
heat and power)
19
Examples of business oppor-
Sectors
Summarising trend
Transport
The urbanisation process poses
The Netherlands has a long
a lot of challenges for the ur-
history of dealing with traffic
ban transport systems which
congestion and the set-up of
need to be addressed in the
efficient public transportation
coming years. This includes
systems which could be of value
trends towards more and bet-
added in China:
tunities
ter public transport options as
well as more efficient private
- Intelligent transport planning
transport options.
and management system
- Public transport planning and
management
- Urban underground design
- Linkage design between urban
and rural transport systems
- Opportunities in biking systems
- Electric and hybrid vehicles
Residential and office
More stringent energy efficien-
The Netherlands scores high in
buildings
cy standards will continue to be
the design and construction of
applied for buildings. There will
low carbon buildings and also
be an increasing trend towards
has significant experience in the
more integrated city planning
retrofitting of buildings to be-
matching supply and demand
come more energy efficient:
for energy in a better way.
- Low carbon design of buildings
- Innovative building materials
including integration with renewable energy options
- Development of retrofit programs for cities
- Efficient and demand- responsive home appliances
Urban industry
There will be continued trend
The Netherlands has a good
to move the more heavy indus-
reputation integrating industrial
trial activities out of the urban
activities in urban areas. Areas
centres, but there will be con-
for cooperation could include:
tinued opportunities for hightech energy efficient industrial
- Cogeneration and waste heat
activities integrated into the
use for space heating
urban landscape.
- Co-siting of industry to opti-
20
Sectors
Examples of business oppor-
Summarising trend
tunities
mise resource use
- Waste to materials and recycling technologies
Integrated city plan-
There will be an increasing
The Netherlands has a long
ning
trend to better integrate the
history of integrating the energy
energy system planning in
system into cities. Activities
cities into the overall urbaniza-
where Dutch entities could add
tion planning to arrive at a
value include:
more efficient and sustainable
energy system in the urban
-Scenario analyses and mid to
areas.
long term target setting for
cities
- Development of mid- to longer
term low carbon city plans
- Energy performance monitoring systems for buildings and
cities
- Multi-stakeholder project
planning and execution
- Demand-supply integration
technologies
3.2 Challenges
Financing energy efficiency and renewable energy is difficult, also in China
Also in China, the landlord – tenant problem exists with many building being developed as (speculative) investments by entities that will never use the building. Green building technology is available in
China, but it is not financially feasible because, as one interviewee commented, neither the government nor the owner of the building is willing to pay the incremental cost, because many properties
change ownership quickly and the benefits will not go to the one paying. Understanding how the
money flows and working on a solid business case is key for successful market entry.
Cultural differences can be difficult to overcome
Cultural difference is generally considered as one of the main challenges for Dutch companies to enter Chinese market. Several interviewees indicated that the work style and communication can really
block effective cooperation. Misunderstandings about the role of email versus phone and about the
different roles the government has in China as compared to the Netherlands can really make or break
a deal. One interviewee had a vivid description about the different in working style saying “Chinese
colleagues act faster than Dutch colleagues and they think differently; when they ask questions from
Dutch colleagues, they often get replies with more specific questions, which frustrates them; Chinese
21
employees act without necessarily knowing all details, but Dutch employees act step by step; Chinese
employees are much more aggressive and ambitious; that is not right or wrong, but it may be more
suitable for Chinese market”. At the same time, cultural differences should also not be overrated.
Like Europeans, not all Chinese are the same and there is back and forth a high level of acceptance of
cultural differences.
Protection of intellectual property rights can be a problem
One concern for international companies is the protection international property rights in China. The
viewpoints on this issue, however, do vary with several of the Chinese interviewees indicating that
protection of intellectual property in China is nowadays much better organised.
Pricing of products and services is not easy
Pricing is another primary concern. Basically all interviewees who talked about this issue confirmed
that making money in China is not easy due to continuous pressure on price setting. Typically, China
has still access to cheap labour and setting up local branches is for manufacturing industry thus vital
to remain competitive in terms of pricing.
Some sectors are dominated by state owned enterprises or blocked for foreigners
Competition from state-owned enterprises is tough. The state-owned companies have more access to
inside information and government resources and some sectors are even blocked for foreign companies. Electricity production or supply of any kind is in principle the business for state-ownedcompanies like State Grid, although we can occasionally find some private hydropower stations in
some southern cities in China. It is therefore very difficult for Dutch electricity companies to directly
enter Chinese market, although it is legally allowed for private or even foreign companies to sell electricity through projects like waste incineration for electricity. It is also demanding for foreign companies to access energy projects relevant to city planning because most of city plans are made by
state-owned design institutes and held as secrecy. Foreign companies can easily be declined for the
sake of security.
A good reputation is not easy to get
Reputation might also be an obstacle for Dutch companies. All the interviewees know Shell and Phillips well, but they can hardly mention a third Dutch company. A successful case study, preferably in
China is quite necessary to grab larger share of the market. Be prepared it takes a while to convince
the stakeholders involved. One of the interviewees defined the time consumed in convincing the market as education time, which sometimes takes considerable time. The other interviewee who is from a
successful Dutch company even defined the education time as at least five years.
Difficulties understanding the local city dynamics
In everyone region and every city in China, Dutch entities entering the Chinese market will find a
wide array of different stakeholders and institutes. The boundary between all the different institutes
is not always clear and it is in many cases also far from transparent what the relation is between
public bodies, research and knowledge institutes and state-owned or private companies. To find out
the most efficient way to deal with the key stakeholders can be quite time-consuming, but is at the
22
same time essential to become successful. Teaming up with existing initiatives such as the Dutch
Sino cooperation in Shenzhen or the EU China cooperation projects can be an effective way to efficiently overcome the initial hurdle of not understanding the local city dynamics.
Difficulties finding the right regions / cities
China is an enormous country. Doing business in Bulgaria is not the same as doing business in Norway and similarly, not a single region in China will be the same. The diversified business culture may
lead to difficulties for Dutch companies in finding right the right regions to focus. As one interviewee
said, they found it totally different to do business in Guangdong as compared to Shanghai. This challenge also exists among Chinese businessmen from different provinces. Judging from the national
policy, the business opportunities seem promising in so many provinces. Every city has an industrial
park with preferential policies to adopt certain types of investments and it is not easy to identify
those cities and those regions where the combination of local policy makers and policies provide the
best opportunities for foreign entities to get involved. Also here it can be advantageous to team up
with existing initiatives and cooperation projects to avoid the search for the specific city or region to
focus on or to make that search easier.
To sum up, the main challenges Dutch companies are facing include the challenge of defining a successful business case taking into account the specific Chinese situation, the challenge to overcome
the cultural differences by allowing yourself enough time to understand China and the difficulties in
finding the right focus regions and partners in the myriad of different governments, government related entities and companies in China. In the next chapter we formulate some recommendations.
23
4 Recommendations
This report makes clear that the unprecedented urbanisation in China will without doubt continue to
open a wealth of business opportunities for Dutch companies, academia and research institutes that
are active in the field of a more sustainable energy supply for cities, energy efficient solutions and the
design of city-related energy and climate policies.
Several companies already made the step into China. However, entering the Chinese market is far
from straightforward and there are many challenges related to market entry in China as explained in
the previous chapter.
4.1 Recommendations for business entry
Based on these interviews and our own insight, we formulate four key recommendations for business
entry:
1. Make sure your product is right – the business case is key
As recently also stressed by Azure International in a study on Dutch clean energy opportunities21, the
importance of connections, or guanxi, to do business in China should, although important, not be
overdone. Ultimately, it is the business case that counts as everywhere in the world. Does your product provide value for money, is your knowledge unique, and is your concept simply better than competing concepts? If yes, there is a chance you will make it, but you will need the right partners and
connections to actually make it happen. If not, you will not make it, regardless how many dinners
you participate in. Since there is still abundant access to relatively cheap labour and access to cheap
standardised products and services, it is essential to really stand out with the product or service you
have to offer. As James Jao rightfully says in one of his books: “you must be the best in what you do.
The locals can do mediocrity cheaper and faster”22 . So yes, integrated city planning with a timerobust smart match of energy supply and demand could be a true value adding concept for China
right now, whereas you will not conquer the market with only a standard city plan. A service to provide on the ground good bilingual Chinese - English project management services for internationally
funded multi-partner research or consultancy assignments on greening China’s buildings might be an
excellent product, whereas getting involved in such projects with only home-based international staff
might not be the key to success. A good example of a potentially successful business case could be
an integrated municipal waste treatment system including good waste collection systems and the
integration of waste water and waste incineration technologies as currently studied in the Sino Dutch
Shenzhen cooperation project.
21
Azure International: Opportunities for Dutch Clean Energy companies in China, 2013
22
James C. Jao: Straight talk about China’s urbanization, 2012
24
2. Ensure on the ground presence and allow enough time for learning and networking
Obviously it is common wisdom that local presence will help to grow a business in any country, but it
is even more true in China. China is a huge country and its culture, business habits, and language are
not easy to grasp and understand for anyone coming from distance. Therefore, when starting in China, make sure you localise (both in terms of location and in terms of staff) your business as soon as
reasonably possible. Only from within China and with staff that understand the culture and the language, you will be able to get a grip on the seemingly endless number of connections between government and private sector, the different roles these actors play. Only on the ground, you will be able
to build and maintain your relationships, so that these relations start referring to you as a trustworthy partner to work with. This process will certainly take time, but it is certainly much more convenient to have meetings suddenly being cancelled or suddenly being arranged the next day when you
have your office in China as compared the situation that you have to fly back and forth to Europe to
gradually test the viability of your business model in China. A good example can be found in James
Jao’s company, which often score second in tendering processes when the company was still in Hong
Kong and became successful in mainland China only after the company was set up in Beijing.
Depending on the business you are in, it is clear that Beijing is the key city for any nationally oriented
business propositions, but the key city clusters around Shanghai and the Pearl River Delta are obviously huge markets for urbanisation related services as well with the new wave of urbanisation taking
place in the west of China with city clusters around Chengdu (14 million) and Chongqing (30 million)
populating per city more than the total population of the Netherlands. Although it is not very easy to
give clear guidance on the provinces and cities with most opportunities, it is important to realise that
China is an enormous country23. Pilot projects, cities selected to demonstrate certain concepts might
come up all over the country and can give strong impetus for specific business opportunities. A sound
in-China regional scan can, depending on the business you are in, is key for a successful market expansion. Teaming up with existing initiatives and projects (such as those identified in the Chine European partnership on urbanisation or those cities designated as low carbon or smart city pilots) can be
an efficient way of overcoming the hurdle of finding everything out all by yourself.
3. Consider going together, find the right partners and spend time to show your product
Chinese are most willing to buy clear ready-to-use solutions for specific problems they are dealing
with and very much like to see that what they buy, actually works. It is good to keep this in mind
when entering China. As such, it could be wise considering teaming up with others that complement
your service or product to provide a more total solution (e.g. an urban planner with a zero carbon
building designer or a consultancy with a technology provider). Teaming up, like is for example done
by the Dutch wind energy industry (Holland, home of wind energy, www.hhww.eu) or the Dutch
Cleantech industry (www.cleantechholland.nl) can help to overcome the long lead times required to
come to actual business and to spread the costs of relationship and trust building that is an essential
23
As also stressed in Azure International: Opportunities for Dutch clean energy companies in China, 2013
25
part of doing business in China (see also the previous part). In doing so, it is vital to really showcase
the solution you provide. Chinese love to see demos, pilots, working models, working examples and it
will be hard to convince clients by trust or an international name alone, especially when starting business. In finding the right business partners, it is important to have a very clear view on the business
interest of yourself as compared to those of the partners you work with and communicate about this
right from the start (we both want to make money out of our collaboration….) even though the route
from an initial contact to a final contract will be a long and will involve general meetings, signing of
rather empty Memoranda of Understanding and tough negotiations towards the end. Too often, there
is a complete misunderstanding on the final cooperation model (ah, we thought you would bring European money to China, not try to earn money in China) leading to a lot of frustration en route. However, the benefits can certainly outweigh the frustration at the end. BOON Edam, for example, set up
a Joint Venture in 2001 and although they also experienced frustration in the cooperation between
Chinese and Dutch colleagues, they at the end made the best out of two worlds offering (energy)
efficient entry solutions for many Chinese buildings.
4. Partnerships to offer integrated solutions for cities could be the key to success
There is a lot of attention and interest in more integrated total solutions for China’s situation such as
a smart integration of energy supply and demand technologies (e.g. smart grids, distributed renewable energy), a more integral approach towards waste (including waste collection, waste water and
waste incineration) and a more holistic approach to the various energy demanding activities
(transport, industry, buildings) in cities. For such integrated solutions, the stakeholders involved will
be too complicated for a single company to deal with and the combined expertise of a number of
companies (including potentially Chinese ones) might be needed to offer such a solution. Forming
partnerships with a clear total concept that offers a total integrated solution to a specific problem
(like the waste issue in China’s city, the design of a stable electricity grid with increasing shares of
renewables and a fluctuating demand or an integrated target setting and monitoring system for a
Chinese city) could be a key to success because it is in high demand in China’s cities.
4.2 Recommendations for Dutch government support
The Dutch government support Chinese business entry in many ways, including the work done by
RVO, the existing MoU on energy cooperation and the business support provided by the Dutch embassy, consulates and business support offices. Nevertheless, the interviews provided material for
some specific recommendations for making this support more effective:
1. The more specific the services supported, the more likely the result
“Urbanisation” and “energy aspects of urbanisation” are by definition rather broad terms as becomes
also clear from this report. Supporting only general themes in trade missions, events, cooperation
26
agreements etc. bears the risk that it becomes very difficult to target specific audiences and, more
importantly, to make clear which specific solutions Dutch companies can provide for which specific
problems. One of the ideas brought forward was to use the existing work done in the top sector energy in the Netherlands (and the various top consortia for knowledge and innovation under it) to formulate specific solutions viable to the Chinese market and to use for example the PIB program
(http://www.rvo.nl/subsidies-regelingen/partners-international-business-pib)
to
actively
promote
such specific solutions in the Chinese market with as concrete goals as possible. The support and
activities could be framed in a clear “problem in China” “solution provided” “value generated” way
rather than the more general “look at how knowledgeable we are in this area” type of approach. The
previous chapter gives some suggestions based on the key trends and solutions needed such as an
integrated waste water and municipal waste solution, low carbon building design, bicycle solutions for
China’s cities and a mid- to long term total energy system planning, target-setting and monitoring
tool, but this could be further deepened in collaboration with the more relevant top consortia.
2. Support should not stop with meetings alone – support is needed up to the contract
When entering China, many experience how easy it is to build an initial network and to find open
doors for discussing cooperation. International knowledge is valued and appreciated in China and
many Chinese do like the interaction with foreigners to learn, to absorb knowledge (or just to practice
their English). Government support that is only focused on making these initial connections will, although useful for those making the first step, not be very instrumental in getting a business deal
done. Several interviewees stressed the need for more dedicated support in the final stages of doing
business, i.e. bringing the contacts to contracts. Support in doing commercial negotiations and contracting and dedicated support in doing real business with the Chinese government, government related institutes and state owned companies might have more effect than organising yet another trade
mission focusing on meetings and making connections alone.
3. Activities funded by both sides is more likely to yield results and is an indication for
real needs
China has a long history of international money flowing into China via support programs, international
research cooperation projects etc. Given this history, many Chinese expect foreigners to bring money
to China rather than to get money out of China, especially in the more research and consultancy related business, less so when it comes to selling products obviously. At the same time, international
support and business support supported by the Dutch government possibly too often took the starting point of “we foreigners know exactly what is good for you and are here to tell you so”. To break
with both habits in designing further support activities, it is recommended to the Dutch government
to find cooperation models with the Chinese government and to support Dutch business in China
starting from a clear needs assessment form the Chinese side of the Chinese side. A good indication
for real willingness to come to real business is in that sense the willingness to share costs also in the
initial phases of match making and making relations. It is safe to believe that the Chinese govern-
27
ment are increasingly willing to pay for the international cooperation. As one interviewee said, they
expect some really good demonstration project which can be extended, even without much funding
from foreign partners as before. So, we would recommend that further cooperation should really be
targeted towards mutually funded activities, which will in the end be beneficial for Dutch companies
and for China and not spend too much effort in arranging study tours, technical support and workshops, etc. unless Chinese partners are willing to pay for those.
28
List of interviewees
Organisation
1
2
3
4
5
Name
Ministry of Housing and Urban-Rural Development
Shenzhen Energy group
Tian Yongying
Zou Jinsheng
Shenzhen International academy of low carbon development Low
Carbon institute
Chinese Academy of Science, Institute for Urban and Environmental
Studies
Chinese Academy of Science, Institute for Urban and Environmental
Studies
6
J.A.O design International
8
SB China Venture Capital
8
Shenzhen Institute of urban and environmental studies
9
Energy Research Centre of the Netherlands
Wang Dong
Pan Jiahua
Zhuang Guiyang
James Jao
Alvin Liu
10
World Resource Institute
11
Dutch Embassy Innovation Attaché
12
NDRC – China Center for Urban Development
13
Amsterdam Energy Bedrijf
14
Beijing Boon Edam Entrance Technology Co.,Ltd.
15
TU-Delft
16
Teesing
Guo Yongcong
Levien de Lege
Lei Honpeng
Han Wesseling
Liu Yue
Erik Koldenhof
Willem van de Nes
Martin de Jong
Dick de Jongste
(via e-mail)
We would like to stress that statements in this study cannot be attributed to individual interviewees
and the content of the report remains the full responsibility of the authors.
29
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