Prompted by sheer excitement from the recent release of the China Green Tech Report 2009 (see link below) -- I will present a discussion (not legal advice) regarding foreign investment in China's Photovoltaic Industry (i.e. Solar Power!)
I. Introduction
Forced by economic and environmental pressures, China, the second largest consumer of coal in the world, has taken an aggressive and proactive stance to encourage sustainable development through foreign investment in green technology. In the industry, the term commonly coined as “green energy” may also be referred to as low carbon, clean or renewable energy – and refers to alternative energy sources such as wind, solar, geothermal, biomass, hydro power, or magnetic energy; which enables the generation of energy such that “it is environmentally friendly and is created and used in a way that conserves natural resources and the environment” . “By 2020, the Chinese government is committed to raising the share of ¬renewable energy ¬ (excluding hydroelectric power) in the energy mix to 6%, from the current 1.5%”.
Until now, affordable technologies have been beyond the reach of China which is home to 16 of the world’s most polluted cities. However, amidst the rapid environmental degradation that is the unfortunate consequence of China’s economic prowess, the market potential for foreign investment in the green energy sector is unlimited. For example, in May of this year, central PRC authorities pledged to invest more than RMB 2 trillion in renewable energy sources, as part of the new energy industry stimulus plan.
Momentum and interest for investment has been high due to the Chinese government’s proactive role in promoting ‘green deals’ and its increased scrutiny over highly polluting industries. Despite this, foreign investors focused on ROIs are concerned that maintaining positive margins in green investments may be challenging because of the existing cheap availability of non-renewable energy and further competition from State-owned enterprises which are already better financially positioned by government subsidies and the control of down stream uses of energy.
In addressing such concerns, this article focuses on “solar energy” and gives an overview of China’s regulatory environment and highlights some of the alternatives for market entry through foreign investment.
II. The Regulatory Environment
The PRC government has set out its general policies with respect to the development and application of green technology in the Renewable Energy Law (effective January 1, 2006), which delegates responsibility to the National Development and Reform Commission and the State Council to oversee development of this industry.
The Industrial Guidance Catalogue for Foreign Investment (amended December, 2007) (“the Catalogue”) sets out rules with respect to which industries are encouraged, restricted, or entirely prohibited for foreign investment and specifically encourages foreign investment in renewable energy R&D, green energy production, etc. The Renewable Energy Industry Development Guidance Catalogue further elaborates on the government’s support of ancillary activities related to the production of green energy - such as design and manufacturing, as well as providing a framework of rules on system support, equipment, materials and components.
Other notable laws and regulations will be discussed more specifically in Section III below.
III. Investment Alternatives
In looking at the various methods for market entry into China’s solar energy sector through foreign investment, it is prudent to divide the discussion into (a) foreign investors who already have a legal presence in China for example through wholly-owned foreign enterprises or Sino-foreign joint ventures (“On-shore Company”) and (b) foreign investors who have no existing legal presence in China (“Off-shore Company”).
A. Foreign Investment in China’s Green Energy Sector Through On-Shore Companies
In the PRC, foreign investment in the green energy sector through On-shore companies requires not only adherence to the general rules regarding foreign investment in China (e.g., PRC Sino-foreign Equity Joint Venture Law) but depending on the type of business also special rules, such as those applicable to foreign investment in the power supply sector (e.g., Regulations Regarding Foreign Investment in Power Supply Projects) in addition to other rules promulgated at the national, ministerial and local levels.
[The juicy details to be provided in Part 2.....]
- For now you can check out this article by WSJ http://online.wsj.com/article/SB125256399493998709.html
- and here is the China Green Tech Report 2009 http://www.china-greentech.com/report
