China Emerging as an Innovation Leader: Lessons Learned From Our 2017 Cleantech Tour of China

On March 21-23, Cleantech Group has the pleasure of leading its 5th Cleantech Tour of China with a group of young, Western clean technology companies and investors with relevant portfolio companies for 3 full days of meetings and network-building activities.

The tour provides cleantech CEOs and investors with an excellent introduction to doing business in China, as well as the opportunity to showcase their companies to multiple China-based investors and partners.

Many Western technology companies and investors, without a doubt, view China as their biggest potential market outside North America and Europe. In addition, they have also traditionally viewed the country as a source for low-cost goods and manufacturing services. However, two years since our last Tour, China’s role in cleantech has become much more evident, and we have summed up 5 lessons learned from our 2017 trip.

The economy continues to evolve

China has seen a slower economic growth over the past couple of years, and under President Xi, the country has a clear focus on environmental protection, people’s well-being, and sustainable development. We begin to see a consumption-led approach rather than an investment-driven policy, and premium (and often green) products are on the rise. The old notion of China being the manufacturing hub is no longer the case, as services have overtaken manufacturing as a share of GDP, and the country no longer has the cheapest labor costs (think Southeast Asia). Furthermore, the central government is pushing for “strategic emerging industries” via Made in China 2025 and One Belt, One Road initiatives.

Emphasis on developing home grown innovation across key strategic emerging industries has intensified

China’s old strategy in raising national GDP via rapid industrialization is no longer the focus, and the nation is shifting towards an innovation-based economy. We have seen the rise of Tencent and Huawei as leading national innovators, and their significance in the country’s economy has only gotten stronger since our last visit. Moreover, the innovation ecosystem has started to emerge with the creation of incubators, accelerators, and other related service providers opening up offices in Shenzhen, China’s capital of innovation. The fact that more Chinese firms are suing each other over intellectual property than ever before are all signs pointing toward the early growth phase of a more innovation-led economy.

China is stepping into a global leadership role on climate change

China has shown no signs it will scale back in climate change efforts, even if the United States backs off from the Paris Agreement and other climate change initiatives. To the Chinese, climate change is no longer an environmental issue alone, but touches on social-political challenges when air quality index is hovering above the red zone.

Strong appetite for foreign technologies to help China, but the marriage (integration) is hard in practice

One of the fundamental differences for Western cleantech companies doing business in China (versus in North America and/or Europe) is the culture. In China’s relationship-driven model, business decisions may not be clear-cut, and therefore require a lengthy relationship-building process with Chinese counter parties. From our workshop discussion, the recommended model would suggest to start with an initial minority investment/involvement, build that relationship over time, and then further explore other opportunities (such as joint venture, majority investment, etc.).

Strong acquisition appetite for “hard” cleantech technologies

Chinese state-owned enterprises still show signs of strong acquisition interests, and are looking to acquire foreign cleantech companies with proven technology, existing operations, and a good revenue track record. With the Trump organization’s stance on climate change, many Chinese view currently view the US as a buyer’s market and the right time for acquisitions.

Returning from this trip has once again proven the importance of cleantech markets to enter the Chinese market. The question remains for those who have thought about China is not a matter of if they should enter China, but when they need to hit the ground running.

Join our upcoming Cleantech Forum Europe in Helsinki, Finland on May 16-18, as we will host a spotlight on China featuring Shelby Chan, Managing Partner of Tsing Capital. We will talk all things China, the big trends, the potential for Western technology companies to work with China to address its environmental issues, and to look to answer questions on your mind.