Cleaning Up in China

As the country starts to get serious about tackling its huge environmental problems, companies see many opportunities to make money

By Frederik Balfour

I admit that I didn't go to the 9th China International Environmental Protection Exhibition & Conference in Beijing expecting to be entertained. But after spotting a clutch of locals gawking at a screen in one of the exhibitor booths, I soon found myself transfixed, along with the other onlookers.

The footage featured the Honey Monster septage-receiving system, which was shown grinding up and spitting out an astonishing assortment of stuff: Tennis shoes, army blankets, full ketchup bottles, even wooden furniture -- complete with faux-Holstein-cow upholstery. Apart from being reminded of a disturbing scene in the film Fargo involving a victim and a wood chipper, I was impressed.

Apparently, so are the Chinese. JWC Environmental, the Costa Mesa (Calif.)-based maker of the Honey Monster and its cousins, the Muffin Monster and other grinders used in treating solid waste, primarily for sewage systems, sold $200,000 worth of these machines to the mainland in 2004, tripling the 2003 sales. With more projects in the pipeline (pardon the pun), Senior Sales Manager Scott Kelly is predicting 50% sales growth this year and says the potential is so great the company is looking to manufacture and assemble in China, too.


  Kelly isn't the only one touting the potential business opportunities as China tackles the world's biggest cleanup job. People flogging everything from water purifiers to wind turbines and hydrogen-powered vehicles are flocking to the Middle Kingdom to sell their wares and services. And no wonder. China's streams, air, and soil are among the most polluted in the world, and its pell-mell pace of industrialization is creating problems of a scale unseen anywhere.

Just consider some of these scary statistics. Acid rain is falling on one-third of the Chinese territory, more than 70% of China's lakes and rivers are polluted, and one-quarter of its citizens don't have access to clean drinking water. Less than 20% of solid waste is treated, and according to the latest World Bank report, 6 out of the 10 most polluted cities in the world are in China.

The World Bank also estimates that pollution costs China in excess of $54 billion a year in environmental degradation, loss of life, and disease. With 26 million cars on the road and the number expected to double by 2010, automobile exhaust will account for 64% of air pollution.


  China is plenty aware of these problems and has embarked on major initiatives in such large cities as Beijing, Shanghai, and Guangzhou. Beijing is especially keen to clean up the haze that hangs over it in time for the 2008 Olympics. The city has already put 2,100 natural-gas-fueled buses on the road and plans to have as many as 8,000 running by the time the Olympic torch gets lit.

Cummins-Westport, the U.S.-Canadian joint venture that exports these engines to China, is also looking to set up local manufacturing facilities. Cleaner-fuel engines are powering buses made by Daimler Mercedes Benz (DCX ) that are on the roads in Shanghai.   Transportation is just a small part of the pollution pie, however. China is one of the least energy-efficient nations on earth. It consumes more than three times the world energy average to produce one dollar of gross domestic product -- 4.7 times the average for the U.S., 7.7 times the average for Germany, and 11.5 times the average for Japan. This high level of inefficiency is leading companies like GE Power (GE ) and Veolia of France to market technologies that will harness the methane gas produced from decomposing garbage and sewage, as well as the huge amounts of gas that escape from China's coal mines.

The Kyoto Protocol on Greenhouse Gases, which China is a signatory to, also provides opportunities. Although the countyr is exempt from having to adhere to emissions reduction because it's still considered a developing country, it will participate in the Clean Development Mechanism, whereby wealthier countries subsidize China to encourage it to reduce emissions, which are credited to those countries.


  According to an executive from a large power-generating company at the conference who asked to remain anonymous, one coal-mining company in Hunan province is about to receive certification under this scheme of carbon credits, which will involve the purchase of methane-fueled engines that will produce 15 megawatts of power.

Alternative-energy outfits are also hankering for business in anticipation of the country's Renewable Energy Promotion Utilization Law, which takes effect Jan. 1, 2006. China already has a capacity of 650 megawatts of wind and other renewable-energy sources and plans to have 4,000 megawatts of capacity by 2010. Danish concern Vestas Group has received an order for 50 wind turbines of 2 megawatts each as part of the plan to establish a blade factory in China. Other players include Gemesa Energy of Spain and GE Wind.

Industrial waste is another area where companies see great opportunity. Sweden's Purac has been selling turnkey systems for waste-water treatment to China since the early 1990s and opened a full-time Beijing office in 1999.


  Initially, most of its equipment was paid for by donor money and soft loans, but now Chinese enterprises are shelling out their own cash for treatment plants, especially in the pulp and paper industry, Purac's main focus in China. "We've seen the attitude of management at these companies change dramatically," says Lennart Huss, who heads the China office.

It's still very early in China's cleanup task, and the country's authorities admit that for all of their grand ambitions, they're making very little progress. In an environmental assessment report the government released in May, its authors said China saw virtually no improvement in 2004 over 2003. If they don't do something soon, the 2008 Olympics in Beijing could end up a very smoggy prospect indeed.

Balfour is BusinessWeek's Asia correspondent

Edited by Patricia O'Connell

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