China leaves only 30 years to drop the emission from peak to zero while for most developed economies it would be 40-60 years. This means much more dramatic changes in policy and technology adoption.
27 April 2021
In Sept 2020, China made a commitment for 2030 carbon peak and 2060 carbon neutrality (Net Zero). This may seem at first glance not that significant compared with countries such as France, Germany, or the UK who pledged net-zero at 2050, but actually, it is even more. As of 2019, China as a country produces the biggest CO2 emission, 28% of the world total (although in terms of per capita emission, China ranked 47th). To reduce all this emission while maintaining a high growth rate is a task of tremendous magnitude. In addition, China leaves only 30 years to drop the emission from peak to zero while for most developed economies it would be 40-60 years. This means much more dramatic changes in policy and technology adoption.
China 2060 commitment is being translated into breath-taking investment opportunities in renewable energy and cleantech. To demonstrate the breadth and depth of such opportunities, we interviewed Mr. Simon MacKinnon, who we believe is very well qualified to share his business experience in the Chinese cleantech sector as a British businessman in China. Currently the Chairman of Xeros Technology China, Simon has spent 35 years in China involved in environmental technology businesses in cleaning the air, water monitoring, disposal of city waste and water conservation. Simon was made an OBE by the Queen for his work helping to build links between China and the UK. He is also one of only 35 foreign citizens since 1949 to have been granted Honorary Citizenship of Shanghai.
Other interviews in our ViewPoints Series
Q: Could you tell us about your career experience in China that, as I know, involved almost all forms of environmental businesses, or cleantech?
Mr. Simon MacKinnon:
I’ve been in China since 1985 living in Shanghai and I’ve been involved in four major areas of cleantech and probably more specifically – Environmental Business.
The first of those was in addressing air pollution with Corning Incorporated, the American Fortune 500 company. Corning has technologies for controlling automotive pollution from petrol engine cars and also a similar larger product for controlling power station pollution, particularly nitrous oxides and mercury.
The second area was with Modern Water, a UK-listed water technology company with water monitoring technologies primarily used by water treatment plants and industrial plants here in China.
The third area was in waste disposal. A major challenge for China as people move to the cities, generating more waste that has to be disposed of. Working with Huaxin Cement, which is a leading cement and environmental company. I was the Director of Huaxin Cement for 6.5 years. Huaxin was a pioneer in taking urban waste, processing it and then burning it in the cement kilns. It is completely burnt and becomes part of the cement.
The fourth area that I’m involved with today is as Chairman of Xeros Technology China, which is a polymer technologies company. It uses small polymer beads we call the XOrbs. The first major application is in washing machines. It delivers radical innovation, reducing water use, reducing the amount of chemicals used and reducing the amount of power required.
In summary, my career has been around cleaning the air, water quality monitoring, the processing of municipal waste, and now in water conservation.
Q: How significant is China’s recent commitment to achieve carbon neutrality by 2060? Have you observed any change or development in the business sector after this commitment was made?
Mr. Simon MacKinnon:
Two questions you’ve asked. The first is the significance of – the twin announcement – the peak emissions by 2030 and then 2060 commitment of net-zero emissions. The summary answer to your question is this is absolutely huge and will be transformative for China’s economy.
With the numbers around this, you can now walk back from the 2060 target and see what China has to achieve from today. You have Goldman Sachs talking about USD16 trillion of investment in order to meet that target. 40 million net new jobs, power generation having to increase by three times by 2060 driven by renewables to meet those targets.
So the first answer to your question is this is going to be transformative, the numbers and the investment opportunities are huge.
To your second question about changes since, so we are still early but China was already set on a course. We’re seeing enormous investments all across cleantech, across industry and across transportation.
We’ll come to some of those sectors later with your questions, but China is always policy-driven. Foreign investors who are successful here look at what the policies are, look at what the incentives are, look at what the sectoral priorities are, and then try to fit with those Chinese priorities.
So, in summary, enormous opportunities and changes continue and are only going to become larger as policies have put in place to meet that extraordinary target.
Q: What industry sectors do you see as most promising for the adoption of cleantech in China market and why?
Mr. Simon MacKinnon:
I have a slightly unconventional answer to this: it’s going to be across very large swathes of the Chinese economy. We could spend an hour talking together about cleantech and the environment, which of course encompasses power generation, energy efficiency, disposal of waste, remediation of all variety of environmental challenges. But the opportunities are much bigger than that.
It’s about making the industry more efficient now. A lot of the Industry 4.0 targets in China play into the cleantech themes. If you can reduce emissions, that’s also cleantech. If you can make the industry more efficient, you produce more products with no less materials or less emissions, that also needs cleantech.
Transportation, electric vehicles, autonomous vehicles, batteries, an enormous range of opportunities. Even mining, if you think about the increase in the amount of copper that’s going to be required. So, you’ve got mining stocks as well as transport stocks, battery stocks. Even in agricultural technology, you become more efficient. There will be technologies to deal with the huge methane emissions from animals. There will be changes in diet, alternative proteins. So, the list of interesting investment opportunities really spans huge areas of the Chinese economy.
Q: What are the important principles you may suggest for western cleantech investors to follow when developing the China market?
Mr. Simon MacKinnon:
There are certainly some very important principles that you should be following as an investor. Number one I’ve mentioned, which is alignment with China’s objectives. It’s a very simple, policy-driven economy. You need to know what China’s objectives are and you can find those. Look at what the government has legislated, look at the five-year plans, look at the latest 14th five-year plan, then look at what individual provinces are trying to do under that plan. So alignment would be my number one principle.
My second would be to do your homework. So having worked with many foreign companies there is no alternative. Homework, homework, homework. Do the detail and figure out in your area of technology or industry what is the structure here, who are the players, what are the incentives, what are foreign companies allowed to invest in in your area and what you’re not. So that would be the second one.
The third one is to think about partnerships. In some of my businesses we have partnered with Chinese players. In others. we went 100% independent. Those partnerships can be very different. They can be with an SOE, a government player. You can even do partial partnerships with government entities. They can’t do economic vehicles but they can help you with research and R&D partnerships. If you’re trying to develop and customise your technology to work in China, you can do joint ventures. I’ve been Chairman or Director of many joint venture partnerships, where you leverage Chinese partners’ strengths and match those with your strengths and put them together to create something strong that fits what China is looking for and what the Chinese industry is trying to do. If you’re an investor, also think about partnerships by making investments into Chinese VC firms and Chinese PE firms. If you can’t directly invest you can gain with Chinese partners, by investing with them.
Q: Have you seen many indigenous innovations in China’s cleantech sector?
Mr. Simon MacKinnon:
Yes, I have seen indigenous innovation and an increasing amount. It’s actually fascinating. If you read reports on cleantech in China from 2015, and then compared them with the latest reports in 2021. There was a very influential report by I think it was by PWC in 2015, and you compare the language and then the analysis with a report today. In 2015 China was coming up the curve, in 2021 it’s arrived and it’s a direct competitor in a number of areas for western companies and western technology owners.
But there are still areas where China is either behind or is going in different directions. China is moving very fast in cleantech, and of course, there are sectors where it is now a world leader. Solar and wind are cases in point. But solar, wind are still innovating. Some of the technologies won’t come from China. For example, technologies for the blades or wind turbines. Some of that might come from China, some may come from foreign sources that will make those huge turbines more efficient. So even in areas where China is now a world leader in production, innovation is a global thing.
China has now caught up in some areas and is doing some great innovation out of top Chinese universities, in the Chinese Academy of Sciences, Tsinghua University and Zhejiang University. There is also brilliant innovation coming from European and American universities and company labs.
Q: Do you see any regional opportunities with great potential in cleantech sector in China?
Mr. Simon MacKinnon:
A couple of weeks ago I was in Wuxi (a city in east China), visiting a very impressive new industrial district, which was just marshland 15, 20 years ago next to the lakes. The District has accumulated strength in semiconductors, as an example. So different cities, some of them are focused on different things. Semiconductors are a high priority for China for many things, including as an enabler for cleantech. So that’s another example where if you don’t have the chip power, you can’t do some of the things in wind technology or in making the industry more efficient.
I mentioned previously agricultural technology, I’m working with businesses that are focused on Sichuan Province. For example, technology to make pig rearing more efficient. China has the world’s largest number of pigs and the highest consumption of pork. There are all sorts of interesting technologies to use pig waste. How are you going to reduce the amount of methane to reach the 2060 target? In the west, the problem is cows. Here in China, the problem is more pigs. So, what do you do with those emissions? Technologies can address that. There’s a company I work with called 8 Hours Ahead, an unusual name, which does a lot of work with the UK and European companies, helping them bring interesting cleantech and sustainable technologies to China. One of the areas it works in I mentioned before, Sichuan and the agriculturally intensive areas.
I also think there are big opportunities around steel and heavy industry. There are steel concentrations in some challenged areas. In Inner Mongolia up in the northeast of China. Those steel plants are going to need help to reduce their carbon intensity. So, technologies that will help the steel industry, for the Chinese government if you have those technologies, you’re very attractive. If you can help in those areas if you’re talking about a regional question, there’s a concentration in parts of east China, there’s a concentration up in Baotou, up in Inner Mongolia and there are several places in northeast China that will welcome those technologies.
Down in the south, Foshan, not far from Guangzhou and Shenzhen that are known to western investors. Foshan is the centre for tile making and it’s a very polluting industry. So, if you have technologies that can help the tile industry, you will be very welcome down in Foshan in Guangdong because they have a significant pollution problem.
Q: For global investors, where are the opportunities for them to benefit from China’s cleantech development?
Mr. Simon MacKinnon:
Where should global investors look in China? The opportunities are enormous. I’ve already said you’ve got stock market-related opportunities across the whole range of sectors. You can talk about power generation, look at the power stocks; look at the turbine maker stocks; look at the stock’s involved in battery technology for transportation; look at the EV look at the AV stocks.
Stock market opportunities are many and I also mentioned earlier about financing opportunities. The green bond market is taking off here in China, so the questions are going to be around on how do you evaluate those bonds to invest in them.
ESG investing is taking off. I’m an adviser to Jupiter Asset Management. Jupiter has great strength in ESG investing. China is now moving up that curve very, very fast. Within 5 to 10 years China will be an enormous ESG opportunity.
The volume of VC and PE funds is also rising dramatically. Previously used to be focused in cleantech on AI and electric vehicles and AV, but I think you’re seeing a lot more now in sustainable technologies.