VC Funds See Opportunity in China Environment Woes
Date: 10-Nov-06
Country: CHINA
Author: Jeffrey Hodgson
"China simply cannot follow the development path that the rest of us have taken over the last 100 years. There's just not enough energy, not enough resources," James Boettcher, a general partner with Focus Ventures, told a venture capital conference.
"Technology can solve and mitigate (the problems) in some of these areas," added Boettcher, whose Palo Alto, California-based firm had US$825 million in capital under management as of April.
China's double-digit economic growth has corresponded with increasing environmental woes, ranging from shortages of drinking water to heavily polluted air in major cities.
The country's environmental protection watchdog estimated in September that it would cost about US$136 billion, close to 7 percent of gross domestic product, just to clean up all the pollution pumped out in the country in 2004.
Venture capital executives said China's aspirations to be more green pave the way for the creation of clean energy and other environmental start-ups, and investors have taken notice.
Shares in China's Suntech Power Holdings Co. Ltd, a solar cell maker, have risen nearly 72 percent since raising US$396 million in a New York IPO last December.
On Wednesday, a Chinese company that makes solar modules, Canadian Solar Inc. raised US$115.5 million in a Nasdaq initial public offering. Another Chinese solar gear maker, LDK Solar Hi-Tech, plans to raise about US$300 million on the Nasdaq next year, a Hong Kong newspaper reported.
Venture capital investors pointed to the decision to highlight pollution reduction and improve energy efficiency in China's 11th five-year plan approved earlier this year as proof the government is serious about tackling the problems.
"The Chinese government has already realised this is a bottleneck for economic growth," said Don Ye, chief executive of Tsinghua Venture Capital Management.
"The five year plan unveiled a significant investment opportunity for all of us -- for venture capital and private equity companies," he said.
Ye's firm established the China Environment Fund 2002 and China Environment Fund 2004, which invest in Chinese firms developing technologies to improve the environment.
Investments included Nanopam Holding, which develops sewage treatment technology, Enmetek International, a supplier of materials for cutting auto emissions, and Beijing Giant Hemu Co., which utilises waste from pulp and paper mills.
Venture capital executives said their industry has an edge on investment because Chinese capital markets are less developed than in major markets, and banks are reluctant to put money into untried companies with speculative products.
"Tapping into the banking market is actually quite difficult for them. So I would say, regardless of whether it's China or the US, if you focus on early stage development for these companies, the market still exists for venture capitalists," said Ben Ngai, director, financial entrepreneurs group with Citigroup Global Markets Asia.