The Shanghai Hub

China's economy boom is accompanied by increasing pressure on sustainable development. The pursuit of innovative technologies is now present in order to bridge the gaps between market needs and accessible solutions. As the largest source of outward FDI, the majority of China’s investment outreach has been into cleantech industries. Domestically, both policymakers and private sectors are consistently making efforts to promote the industry and tackle environment problems. Undoubtedly, incentivised by government initiatives and propelled by the vast market opportunities, China is one of the most attractive destinations for clean technologies.

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Introduction to the market

Overview

China is the world’s largest developing country, with more than 1.3 billion people. For the past thirty-eight years, China has achieved impressive economic growth, with an average annual GDP growth rate of 9.7%. However, China’s long-term economic development has been constrained by its energy consumption structure. For decades, China has been extremely dependent on coal for energy consumption; according to the U.S. Energy Information Administration (EIA), about 66% of China’s electricity power came from coal in 2012. Today, China is the largest coal producer and consumer in the world and is also ranked first in the world with regards to electricity consumption and coal-derived electricity. Since 2007, China has become the largest emitter of carbon dioxide in the world; as the Chinese public has become more and more worried about environmental problems associated with coal-burning, China’s traditional reliance on coal makes the transformation of its energy structure more urgent. As a result, the government has initiated many favourable policies in recent years to encourage the significant development of renewable energy and clean technology.

In recent years, China has emerged as both the world’s largest producer and consumer of renewable energy technologies, while the country’s investment in renewable energy and clean technology has exceeded the combined total invested by Europe and the U.S. According to the International Renewable Energy Association (IRENA), China will continue to account for nearly 40 percent of the world’s renewable energy capacity growth until 2020. As the world’s largest energy consumer, China’s renewable energy investment could reach USD 145 billion per year by 2030, or USD 2.2 trillion in total. Figure 1 illustrates China’s official targets for renewable energy from 2015 to 2050.

Figure 1: China’s Energy Consumption Structure
Renewables will increase to 15% in 2020, 20% in 2030, and 30% in 2050 respectively, from 11.4% in 2015.

According to the Renewables 2016 Global Energy Status Report released by the Renewable Energy Policy Network for the 21st Century (REN21), China ranked highly in a number of categories to do with annual investment, net capacity additions, production, total capacity and generation as of the end of 2014. In the same year, China also led the world in new wind and solar installations, with 19.81 GW and 10.60 GW respectively. It has widely been recognised that China’s massive investment in renewable energy will make China the largest market for hydropower, wind, solar technology, nuclear energy, and other clean-technology in both the short and medium term.

In 2016, China’s clean energy investment totalled USD 87.8 billion. According to China’s 13th five-year plan, China plans to invest $360 billion into renewable energy during the years 2016-2020.

Figure 2: China’s electricity mix in 2016 in TWh

Industry sectors

Hydropower

China is the world’s largest hydropower producer, with 1,150 terawatt-hours of electricity production in 2016. According to the “Renewables 2016 Global Status Report”, China retained the global lead by a wide margin, with 16 GW capacity added in the year 2015. Hydropower comes as China’s second largest energy source only after coal and is the most widely used form of renewable energy. In 2016, hydropower accounted for about 18 percent of China’s electricity source and China will continue to increase its hydropower capacity, aiming to achieve its ambitious targets of 350 GW from hydropower and 70 GW from pumped storage by 2020 and 510 GW from hydropower and 150 GW from pumped storage by 2050.

Wind power

Wind energy has overtaken nuclear power and ranks the second among all renewable energy categories in China and represents the world’s fastest growing rate. The rapid development of China’s wind energy industry was primarily encouraged by governments’ fiscal and tax incentive policies. In 2016, wind power generated 241 TWh of electricity, accounting for 3.95% of total national electricity consumption. China will install an estimated 23 to 25 GW output of wind energy, which is nearly half of all global wind installations. According to Global Data 2015 Forecast report, China’s installed wind capacity will grow to 347.2 GW by 2025, with annual installations peaking at 56.8 GW in 2022.

Solar power – photovoltaic and solar thermal power

Since 2007, China has become the world’s largest manufacturer and exporter of solar panels. Installed solar capacity rose to 77.42 GW by the end of 2016. Qinghai province, which contains the city of Golmud, leads in installation across the country.

Since 2015, China has overtaken Germany to become the world’s leading country in terms of solar photovoltaic (PV) capacity. According to New Energy for the National Energy Administration, China has raised targets with the goal to install 20 GW annually of solar capacity in the space between 2016 and 2020, and by 2020 the solar capacity will reach 150 GW.

Bioenergy

China has experienced a steady growth in the field of bioenergy, particularly in biomass power generation, biogas from methane capture, biomass pellets and liquid biofuels. Biomass projects are located throughout China, but with a higher concentration in eastern regions and about 80% of biomass energy is located in rural China. According to the 13th Five-Year Plan of Renewable Energy, the development goal of biomass power generation capacity has been set at 15 GW over 5 years (2016–2020).

Nuclear energy

Since 2001, support for nuclear energy has grown substantially in China. However, after Japan’s Fukushima nuclear incident, China froze new nuclear plan approvals and the target adopted by the State Council in October 2012 became 60 GW by 2020, with 30 GW under construction. As of December 2015, China has 31 nuclear power reactors operating with a total capacity of 26.7 GW and 21 reactors under construction with a capacity of 21.1 GW. China plans to build around 40 domestic nuclear plants from 2016 to 2020. By 2020, nuclear energy will contribute about 6% of China’s electricity. China has been actively working with foreign companies on nuclear projects. Currently, China has deployed cutting edge AP1000 reactors designed by Westinghouse and other foreign suppliers.

Clean coal technology

Clean coal technology refers to the collection of technologies designed to mitigate the environmental impact of coal energy generation. Related technologies currently being developed in China include high efficiency combustion and advanced power generation, coal transformation, integrated gasification combined cycle and carbon capture, utilisation and storage technologies. China is the first to achieve large scale industrialisation in direct coal liquefaction and coal to olefins. China has reached advanced levels in key coal technologies, catalysts, equipment, systemic technologies, and engineering technologies for coal to liquids and coal to chemicals. In China’s 13th Five Year Plan for Energy Technology Innovation (2016 – 2020), clean coal technologies are highlighted and the topics are centered on transformation of coal into clean fuels, development of clean power generation based on coal and so on.

Green vehicles

In recent years, China has begun to take a global lead in both manufacturing and sales of new energy vehicles. By the end of 2015, China surpassed the United States to be the world’s largest market for all-electric and hybrid vehicles. In 2016, China produced 517,000 new energy vehicles and the cumulative sales have exceeded 1 million. In terms of charging infrastructure, China built over 100,000 public charging poles in 2016, ten times the figure in 2015.

Lately, China has begun to address two main challenges facing its new energy vehicle industry. Firstly, the recent boom of the industry has been heavily dependent on government subsidies and policies. The Chinese government will cut 2017-2018 subsidies by 20% from those granted in 2016, and 2019-2020 subsidies will be 40% less than this year’s. Secondly, China’s supporting facilities have fallen short of the growing demand of new energy vehicles. In order to promote new energy vehicles, China announced plans to build 12,000 centralized charging/battery swap stations and 4.8 million scattered charging piles across the country by 2020. In the latest Five-Year Plan (2016 – 2020), the Chinese government reaffirmed its priority to promote electric vehicles.

Figure 3: China Sets Ambitious Goals for New Energy Vehicles Development

Geographical clusters

Jing-Jin-Ji Megalopolis

With an estimated population of 111.4 million, the megalopolis generates a disparity of GDP per person, 38,900 RMB in Hebei, 100,100 RMB in Tianjin and 94,600 RMB in Beijing. Beijing is China’s political, educational and media capital. It further enjoys a leading position in the influential sectors of IT, finance, healthcare, tourism and transportation. Tianjin’s strengths have always been in aviation, logistics and shipping while Hebei as a neighbouring province is expected to witness more traditional and high-tech industries relocating from Beijing and Tianjin. Jing-Jin-Ji has traditionally been involved in heavy industries and manufacturing.

Initiatives

  • Air pollution control: To address the mounting industrialisation-based ills of the Beijing-Tianjin-Hebei region, the Jing-Jin-Ji launched the Action Plan for Prevention and Control of Air Pollution, a five year plan (2012 – 2017) involving cutting coal use, closing polluters, promoting cleaner production and controlling the number of private cars, with the aim to reduce average annual concentration of PM2.5 emissions (fine particulate matter) by at least 15% compared to the 2012 level and to reduce the proportion of coal used in total energy consumption to less than 50% through expansion of the natural gas infrastructure.
  • New energy vehicles: Hebei has mapped out a plan to produce more environmentally friendly vehicles. Under the Hebei New Energy Automotive Industry “135” Development Plan (2016 – 2020), the province will aim to increase its annual output capacity of new energy vehicles to 500,000. The plan also calls for the construction of 1,000 electric-charging stations, covering highway service areas, airports and public service locations. Tianjin has planned construction of a 3 Billion RMB (US$440m) new energy vehicle research and development and production center began in the Tianjin Binhai High-Tech Development Area in 2016, whose operations are due to begin in 2017.

Yangtze River Delta

Yangtze River Delta comprises the triangle-shaped territory of Shanghai Municipality, Jiangsu Province and Zhejiang Province. It covers an area of 99,600 square kilometers and is home to over 140 million people as of 2013. China has been developing clusters of emerging industries along the mighty Yangtze as the country seeks to increase its competitiveness globally. By 2030, an innovative, modern industrial system will be fully incorporated and integrated along the river, making the area a “strategic support” for national economic and social development.

Initiatives

  • Yangtze River Delta City Cluster Development Plan 2016-2030: In this recently issued national initiative, 26 cities from Zhejiang, Shanghai, Jiangsu and Anhui provinces in the region are included, aiming to be developed into a “globally influential” cluster of metropolises by 2030. The plan emphasises  making more efficient use of resources to raise economic vitality and innovation.
  • Yangtze River Delta Clean Air Forum: Since 2012, Yangtze River Delta Clean Air Forum has been held as an annual event. The objective of this project is to advance the regional air quality management in the YRD by establishing partnerships, building YRD capacity to comply with the regional air quality management directive and enhancing transparency and data availability to the public.
  • Renewable energy: YRD region puts many efforts into implementing action plans of energy saving, emission reduction, upgrading and retrofitting of coal-fired power plants (2014-2020). For instance, Zhejiang province has been utilising renewable energy extensively, the percentage of which accounts for 19.9% of  total energy consumption in 2016.

Pearl River Delta

The Pearl River Delta is China’s most dynamic, open and innovative region. The PRD is home to nine mainland cities in the province of Guangdong, notably Shenzhen and Guangzhou, as well as to China’s special administrative regions of Hong Kong and Macau. The World Bank recently declared the PRD, surpassing Tokyo, to be the world’s biggest megacity. Its GDP, at more than $1.2trn, is bigger than that of Indonesia, which has four times as many people. It has been growing at an average of 12% per year for the past decade. As a global trading power the region is outranked only by America and Germany.

Initiatives

  • Promotion of regional low-carbon development: Guangzhou and Shenzhen have successfully been recognised as national green and low-carbon cities. In 2015 the PRD region reduced the energy consumption rate per unit of industrial growth by 10.25%. Especially, the greater PRD cities including HongKong, established joint efforts on promotion of cleaner production mechanisms.
  • Innovation-driven development: PRD region is pioneering in innovation and revolution. Incentivised by central government in the future plan for the greater PRD cooperation, innovative technologies have been prioritized as one key factor for regional development.
  • Renewable energy: PRD region has been committed to developing clean energy. Daya Bay New Area 2016 Working Program plans to actively develop renewable energy industry. Recent projects also include Huizhou LNG powerplant, BYD solar power project and Huidong wind power plant.

Trends

Green Economy

China’s ambition in transiting from a brown economy to a green economy has been anchored in its overall strategy, encompassing macro-levels planning and the mobilisation of various stakeholder groups. Revolving around the economic development, China has upgraded its Green Economy thinking from initially environmental protection to sustainable development, and approaching ecological civilisation in its latest status. The leap forward indicates progress in regards to both concept and implementation, suggesting that green economy will continue to be a driving force in China’s development strategy and policies in the near future.

Circular Economy

Ever since its issue of a policy paper to accelerate the circular economy, China has acknowledged the importance of bridging the global gap between economic and ecological sustainability. The targets of moving away from a linear economy and embracing a circular economy are embedded in its national strategy, including indicators such as energy productivity, water productivity, and output of the recycling industry, etc.

Transition Economy

China is in the midst of economy transition, shifting from follower to becoming one of the leaders in adopting disruptive technologies. The economic rebalancing will require reallocating productive resources in the Chinese economy away from heavy industry and upgrading low-end manufacturing into high value added production. Especially, compatible with its ambitions in low-carbon and sustainable development, renewable energy will be the pillar for China’s energy structure transition.

Consumption-driven Economy

Domestic consumption is now the most important driver for the development the Chinese economy. As the number of middle income Chinese is rapidly rising, the focus has shifted from quantity to quality and efficiency. Furthermore, China is implementing a strategy of innovation-driven development and pushing forward urbanisation. By 2030, 70% the of Chinese population will be urban, leading to an anticipation of increased domestic consumption.

Innovative Economy

In 2016, China became the first middle income country to join the ranks of the world’s 25 most innovative economies, according to the Global Innovation Index. In its recent 13th Five Year Plan, scientific progress is to be combined organically with mass entrepreneurship and innovation to yield a mode of development that is more heavily driven by innovation and first-mover advantages. These incentives in promoting innovation are likely to dramatically boost the development of emerging industries.

Sharing Economy

The sharing economy includes businesses that depend on technology connecting people who need a particular service or product with somebody else who has that service or product available. According to a National Information Centre’s report, the sharing economy will be worth 10 percent of China’s gross domestic product by 2020, with a market size estimated to be 1956 Billion RMB. The growth rate of the sharing economy will be around 40% annually.

Figure 4: Trends in China’s Development

Government initiatives

13th Five Year Plan

China recently published its official 13th Five Year Plan, which sets out their development pathway from 2016 to 2020. This plan builds upon the previous five years and aims to create a strong foundation for China’s green, robust and resilient economy over the next five years. The new 13th Five Year Plan also lays the foundation for strengthening China’s green economy. With a strong emphasis on ecological civilisation, the Plan seeks to mainstream green growth across the economy via an elaborate set of market reforms (e.g. resource pricing), green finance and industrial policy measures.

Climate targets

By 2020, China aims to reduce its carbon intensity and energy intensity by 18% and 15% respectively. This means that China has committed to bringing down carbon intensity per unit of GDP by about 50% below 2005 levels by 2020, a more ambitious goal than the 40-45% reduction pledge that China made at the Copenhagen climate summit.

China also aims to invest a total of RMB 2.3 trillion (€310 billion) in clean energy by 2020, with close to 1,000 GW of cumulative non-fossil power generation capacity. Total investment in the energy saving and environmental protection sector is estimated to reach RMB 17 trillion (€2.28 trillion) during the 13th Five Year Plan period.

Overall, China has caught up to and overtaken the EU across a range of low carbon economic sectors, including clean energy investment, R&D spending, power transmission grids and production and sales of electric vehicles. The new Five Year Plan will foster continuous efforts and accelerate these trends.

Investor market /climate

Overview

With the aim for major growth in China’s low carbon economy, China is set up to lead in global clean tech markets.

Figure 5: Investment in the China renewable and cleantech industry from 2014 to Q22016 (in US$M)
Source: PwC report

Investors

In 2015 there were 1775 investment institutes focusing on entrepreneurship, increased by 14.4% since 2014. The total investment capital amounts to 665 billion RMB, as 0.96% of GDP, which was increased by 140 billion RMB from 2014 to 2015, with a growth rate 31.7%. Investment mainly focuses on starting period and growing period (36.5% and 36% respectively), while investment in seeding period is also growing since 2011 (reaching 20.8% in 2014).

Figure 6: Venture Capital Activities Distribution in China

 

Start-ups

In total, there were more than 1.61 million start-ups in China by end of 2015. Average annual growth rate has been near 100%, ranking as the top in the world. Start-ups are highly concentrated in a few major cities, including Beijing, Shanghai, Shenzhen and Hangzhou.

Beijing

Beijing is the capital city of China and rich in talent resources, financial institutions and VCs. In total it has 125 national level entrepreneurship platforms, among which renowned platforms include Sinovation Ventures and LegendStar. With a highly developed economy, its industry distribution is heavily biased towards service industries (more than 80% of its GRP). Numerous people are taking jobs in start-ups, working in various industries. Beijing has less than 1/3 of the number of large industrial enterprises of Guangdong but they are more than twice as likely to conduct R&D.

Shanghai

Shanghai has more than 150 incubators and 100 entrepreneurship service institutions. As China’s financial centre, it has a long tradition in fostering innovative technologies. With a host of many headquarters of MNCs, Shanghai also has strong R&D investment in its private sectors. 15% of the large industrials based in Shanghai conduct R&D and development expenditures represent 78% of the R&D funds in Shanghai.

Shenzhen

Shenzhen is a young city with a strong entrepreneurship atmosphere. 46000 VC/PE institutions provide more than 27 trillion RMB of registered capital. Apart from private investment, the local government also provides encouraging policies through funding and innovation rewards. It is a hotspot for innovation, pioneering in 6 high-tech industries, including biotech, internet, renewable energy, new material, culture and media and next generation IT.

Hangzhou

Hangzhou embraces more than 1300 start-up projects initiated in 2015. The local government also rolled out multiple policies aimed at attracting entrepreneurship activities. Home to the well-known Alibaba, Hangzhou is China’s ecommerce center and is working to attract more internet-based start-ups.

Figure 7: Incubators in China

Universities and research centres

China also has many highly ranked universities, many of which put accumulated efforts into frontier research in clean technologies.

Peking University

UCLA-Peking University initiated a joint programme named “EcoPartnership”. The EcoPartnership will enlist a consortium of clean energy and climate change leaders from American and Chinese universities, think tanks, and the private sector to conduct joint research on smart grids, intelligent vehicles and electric vehicles.

Tsinghua University

The Berkeley-Tsinghua Joint Research Center on Energy and Climate Change is a three-way partnership between the Berkeley Energy and Climate Institute, Lawrence Berkeley National Laboratory’s China Energy Group and Tsinghua University to develop clean energy solutions and groom the next generation of sustainability leaders. It was officially launched on May 10th, 2016. The center will conduct research to promote understanding of China’s energy, climate change and development challenges, collaborate on clean-energy solutions and prepare new leaders in sustainable energy through training, outreach and graduate programmes.

Fudan University

In 2008 Fudan University opened the Renewable Energy Institute to conduct research in the cleantech field. Based on its legacy in new material research, this institute focuses on tackling energy problems from five dimensions, including efficient energy storage, solar energy material, fossil fuel energy, biomass energy and energy reservation.

Shanghai Jiaotong University

A Joint Research Centre (JRC) Agreement in “Sustainable Energy” was signed by Shanghai Jiao Tong University (SJTU) and the Norwegian University of Science and Technology (NTNU) on May 26th, 2010 in Shanghai. Thematic research areas include LNG technology, carbon capture and storage, renewable energy, energy use in buildings as well as zero emission buildings and sustainable energy.

Zhejiang University (Global rank 165)

The University of Leeds launched a strategic research alliance with Zhejiang University in 2009, focusing on some of today’s key energy challenges. This brings together two of the world-leading groups on clean energy technologies. The alliance addresses issues such as clean coal utilisation, pollution control, carbon capture and sequestration, alternative fuels and the development of new energy-related technologies in fuel and solar cells. The Centre also encompasses associated research areas, in particle, environment and chemical engineering, drawing on the combined strengths of the two universities.

Figure 8: Universities in China

  • Shanghai

    Shanghai Hub

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