Spending More on the Environment

Major investment areas

Wang Shiwen, President of the China Environmental Investment Union, says environmental protection investments are two pronged: those for postponing or preventing pollution, and those for combating the damage wrought by pollution. For 2013, the Central Government's budget for pollution alleviation is 210.13 billion yuan (US$33.51 billion), a year-on-year increase of 18.8 percent. Most investments in environmental protection in 2013 will be made along the above two lines.

According to the budgetary report for 2013 released by the Ministry of Finance, money toward environmental protection will mainly be used in four respects: to reduce air pollution; to advance key projects for energy conservation, promote advanced environmental protection products and boost the development of environmental service industry; to advance the prevention and control of water pollution and the construction and operation of sewage networks in major waterways, and enhance protection of the ecological environment in lakes with good water quality; and to prevent and control heavy metal pollution in rural areas.

A report released by Wanlian Securities Co. Ltd. conjectures that because of the massive foggy weather in east China, desulfurization and denitration projects in the forms of engineer-procure-construct and build-operation-transfer will be the field attracting most investment, for it is important to control air pollution.

Song says the desulfurization and denitration markets have already begun development. The new national standard for air-polluting emissions by thermal power plants require that all the newly built thermal power generation sets should emit nitrogen oxides not higher than 100 milligrams per cubic meter, and the existing generation sets should be transformed before July 1, 2014. However, by the end of 2012, only 17 percent of the country's generation sets had been equipped with desulfurization and denitration facilities.

"There is a big investment demand in both building new sets and transforming old ones," said Song.

Jiulong has become a leader in this field, completing contracts valued at 2 billion yuan (US$318.98 million) in 2012. According to Song, the government should guard against investment in energy conservation and environmental protection. Although this is a field with plenty of government support, uncertainties remain. Song says if a slowdown in the economy cuts into profits, enterprises would be less willing to pursue energy-saving changes.

No turning point in sight

"Governments at various levels will pay more attention to the environment, which means an industry geared toward environmental protection is witnessing a period of fast growth. However, the turning point for the improvement of China's environment has not yet arrived," said Chang Miao, Director of the Institute of Environmental Management and Policy of Tsinghua University.

According to Chang, the turning point is often accompanied by a peak in investment. Take Japan for example. The 1960s and 1970s were peak times for industrial pollution control and after that investment began to drop, but the investment in environmental infrastructure such as disposal of sewage and solid waste continued growing until 2000.

China's environmental protection industry still faces problems such as inadequate innovation, poor cooperation among companies, universities and research institutes as well as inadequate input in technology development. China still has to import some key equipment because it has not fully developed its own core technologies. Furthermore, many local governments stress the need to construct pollution-control facilities but then ignore their management. In some localities, the environmental service industry accounts for a tiny fraction of the GDP.

Despite the Central Government's policies of strengthening support to protect the environment, some local officials still place too high a regard on economic development and are not enthusiastic enough about preserving the environment. Therefore, companies that could play a role in turning the environment around face difficulties in securing financing.

"The turning point toward a better environment in China will not come until 2020," Chang said.

Feng Bo, head of MEP's Division of Science and Technology Standards, says it is not investment but technology that limits the country's ability to better protect its environment. As a strategic emerging industry, environmental protection should be technology-oriented. But China's green-focused companies face two major problems: They have unclear goals of development, and they are not fully equipped with necessary technology.

Zhao Penggao, Deputy Director of the Department of Resource Conservation and Environmental Protection at the National Development and Reform Commission, thinks technology is the biggest factor restricting an industry focusing on improving and protecting the environment. For example, the market for the restoration of polluted soil is huge, but the technology is not yet there to meet demand.