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In this episode of China Money Podcast , guest John Barnes examines investment opportunities inChina's drive to achieve a more sustainable and greenergrowth. In particular, he explains the enormous potential ofwastewater treatment businesses in China, and why many green techcompanies might fail as the industry consolidates. Listen to the podcast or read the excerpt below. Q: First, give us a brief definition of sustainability ,particularly relating to your work at PWC? A: Sustainability is all about building a sustainable business.It s not an add-on. It s not a separate thing that companies do.It s about looking at every facet of all business operations andlooking for ways to make operations more sustainable. We work with companies at a high level, looking at how they canbuild sustainable programs within their daily operations: fromlooking at their core products and services to the carbon footprintand life cycle analysis of their products. Q: When we look at China where the policy and business environmentsare very different, what specific areas (under the sustainabilityumbrella) do you see opportunities? A: Given that the Chinese government has made a commitment toswitch the economy way from high-energy, high polluting industries,the potential sectors to watch would be renewable energy, energyefficiency improvement technologies, environmental protectiontechnology and equipment, water management, waste water treatmentmanagement, etc. There is a word of caution here. Just because it s green, doesn tmean it will grow. (For foreign investors), clearly you need to doyour homework. A lot of things have a green label, whether they aregreen or not, who knows. Some of these technology companies inrenewable energy and wastewater management will eventually fail. Q: In those sectors you just mentioned, wastewater treatment forexample, any specific technologies that would be the most relevant? A: With wastewater treatment in China, the government has said thatit would have a wastewater treatment plant for all its majorcities. The government has already built thousands of wastewatertreatment plants around in China. In China, there are a successions of quite small water treatmentplants. You need engineering technology but also technologies tomonitor the levels of toxins in the water and be able to add thingsthat would break down the solids and wastes. There are two sorts of plants in China, the government-owned andalso private ones. The private wastewater treatment plants arelicensed by the government and have contracts with the governmentto treat specified amounts of wastewater for a certain price. Theywill have certainty of their revenues. The biggest costs are electricity and staff. The electricity isfixed by the government. So for example, if you run a watertreatment plant heavy at night, then you will be more efficient.Obviously, all the (Chinese) companies are looking for foreigncompanies with the technologies to make their wastewater treatmentprocess more efficient and more cost effective. Q: Do you have any estimate of the pace of future growth inwastewater treatment in China? A: The issue we have in China is that the price of electricity andwater is set by the government, so there is less opportunity forcompanies to shop around for efficiency. Over time, as China grows,these fixed prices will be freed up. Whether it s three to fiveyears, I don t know. At the moment, wastewater is a safe bet because you know what yourcosts are and your revenue. However, the profitability is not thathigh. But as time goes on, as the market frees up, there will bemore opportunity to make a greater return. For example, you go to different cities and you will find differentoperators running different plants. There are not many operatorsoperating more than two or three plants. We need consolidation inthe market so that people can benefit from the economy of scale. Q: You mentioned profitability is not high. How low is it rightnow? A: I think it s about seven to ten percent return on the privateones. The public ones are probably at five percent return oninvestments. Q: With this kind of return, is it really attractive for foreigncompanies to come to China? A: People come to China because other people are doing it. If youthink you are going to come to China to make a fast buck, youshould think again. Five to seven percent it s not huge, but in this market, it s notbad either. The only way I can see is up as the market consolidatesand as regulatory policies ease. Q: What pitfalls should investors be watching out for, and a wordon the lessons learned from previous mistakes? A: I want to propose eight steps to succeed in China. 1, Find a reliable local partner; 2, Use consultants; 3, Don trely entirely on Guanxi; 4, Do homework and due diligence beforejumping in; 5, Be flexible and patient; 6, Bring your first-ratetechnology; 7, Protect your intellectual property rights; 8, Have agood business model. Q: Lastly, what s your outlook for the sustainability/green sectorin China? A: We will see continued emphasis and focus on the renewable energysector. China has developed its own carbon-trading scheme, whichwill again push companies to be more energy efficient. There will be lots of new businesses with green labels (cominginto the market), and a lot of traditional businesses will embedthese concepts into their general business operations. So we willsee lots of businesses reinventing themselves along the sustainablepractice principle. Our Guest Today: John Barnes is a partner at PricewaterhouseCoopers Consultants (Shenzhen) Ltd.Based in Beijing, Mr. Barnes leads PwC s sustainability andclimate change services across Hong Kong and China, where he andhis team help address issues including sustainability strategy;sustainable supply chain and life cycle analysis; and environmentaland social due diligence. We are high quality suppliers, our products such as China T8 Led Tubes , E14 Led Candle Lamp Manufacturer for oversee buyer. To know more, please visits Dimmable E27 Led Bulb.
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