You would be hard pressed to find a venture capital conference with more gold-rush excitement than Cleantech, which I visited this week in Beijing (well, some industries might be hotter). Grizzled Silicon Valley venture capitalists brushed shoulders and recycled-paper business cards with young Chinese upstarts and entrepreneurs, all angling to get in there, find the next big thing, and strike green. While the Bali summit talked about the Clean Development Mechanism (which is pumping lots of green money into China) green business, a fund for green tech in developing countries, Cleantech was all about proving that China's rise and the challenges of climate change don't have to be bad for Western investors (or for China).
Wind is so old school. The obvious issues and technologies this time were clean coal, solar, pollution and water treatment. "This is a once in a lifetime opportunity," said James Boettcher, of Focus Ventures, a venerated venture capital firm. "Clean coal, coal-to-liquid, factory retrofits, SO2 and CO2 capture, and batteries--we're interested in it all." But as Boettcher and other green diggers told me at the conference, where they were on the lookout for the next big clean tech toy, something key is missing from the Chinese green tech companies itching to grow: new technologies.
To stimulate innovation in green tech, they say, China will need to pour money into research and create more sticks and carrots (tax breaks are scarce and green tech often does not get classified as part of the coveted "high tech" industry). The government should also relax restrictions on foreign investors to stimulate more technology transfer. Nonetheless, total cleantech venture investment in China will reach approximately $600 million in 2007, and is expected to surpass $700 million in 2008 and $2 billion in 2010.
Interestingly, another major limit to clean tech projects like clean coal is the country's severe water shortage -- a problem that is sure to draw its own clean tech investment.As China's water tables and rivers continue to sink into deeper trouble, water was one major focus. China's water and wastewater treatment industry is expected to expand rapidly. "I think Water could come to a head before energy does," Eco-Tech CEO and LEED pioneer Rob Watson told TH. Currently, urban water security is hobbled by staggeringly low prices (1/3 that of the global average), which don't encourage conservation by residents or infrastructure improvements and investment by able companies.
One such company, Duoyuan Global Water-Operation, hopes to achieve a daily wastewater processing capacity of 6 million tons by integrating 30 small water supply companies over the next three to five years. Guo Youzhi, general secretary of the China Desalination Association, said that only 20 percent of industrial wastewater in the country is efficiently re-utilized and 80 percent is being simply discharged. But venture investment in water-related cleantech could reach $100 million in the Chinese market next year, according to Cleantech's report.
Energy-related venture capital -- investments in wind, solar, biomass and clean coal -- is likely to climb to $500 million, thanks partly to the growth of Chinese companies that are eagerly hoping to pursue the model of Suntech. Aside from the ample buzz around the potential of existing technologies that can be used to sequester carbon and SO2 at China's multitude of dirty coal plants, batteries were on many lips, including promising new technologies from Shanghai's Horizon Fuel Cell and Shenzhen's YLS.
As venture capital activity continues to rise, a new report by Dow Jones and Ernst & Young says that Beijing and clean tech are hotbeds. If the Chinese can continue trying to foster innovation and technology transfer, the country could outgrow its "workshop of the world" label sooner than expected, and become the source not of "dangerous" goods but cutting edge, affordable green toys that everyone will benefit from.