Fast-Growing China Pushes Green Tech

A 'green GDP' plan kicks into high gear as a way to jump ahead of the West and sooth social unrest from pollution related health problems.

Due largely to pollution and a pressing need to spend stimulus money, China's government recently kicked a "Green GDP" drive into high gear.
 
Green GDP, launched in 2004, is an index of economic growth that factors in the environmental costs of growth, such as pollution.
 
Chinese officials use the index and fistful of directives to reduce pollution and boost efficiency at state-owned transport, manufacturing and power generation enterprises. They want all goods and services in the next decade to be churned out by the most environmentally friendly and energy-efficient tech possible.
 
A flurry of activity, backed up by official announcements in the first half of 2009, indicate China will be buying a lot more cleantech from foreign and domestic companies.
 
U.S. trade officials late last year predicted that China's Green GDP market could hit $186 billion by 2010 and approach $500 billion by 2020. Some U.S. and Chinese firms already are cashing in.
 
One player is Naperville, Ill.-based Nalco NLC, a supplier of industrial processes that make heating, cooling, power and other industrial systems more efficient. Others include Afton Chemical, a unit of fuel-additive maker NewMarket Corp. NEU in Richmond, Va.; and China Green Agriculture CGA, a Yangling, Shaanxi province-based maker of organic fertilizer which completed an IPO on Amex in Q1.
 
The strategy behind Green GDP is twofold. The first is to give China's economy a long-term edge by consuming less coal, oil and other commodities. This slashes production costs.
 
"China's government views it as a way to leapfrog the West in a number of industries," said Brian Fan, the research head for researcher Cleantech Group.
 
The second, less-publicized reason is to combat severe pollution problems that cause major health problems and stir social unrest in rural and urban areas. The discontent is fanned by layoffs of factory workers in the global downturn.
 
China is pouring plenty of money into its Green GDP campaign. About 38%, or $221.3 billion, of a $586 billion domestic stimulus package -- announced in November and currently being phased in by the government -- is earmarked for cleantech-related initiatives.
 
Transport, power, industrial processes and water treatment are top Green GDP investment priorities. Others include farming, lithium-ion batteries and solar water-heating.
 
Cleantech's Fan says one stumbling block for foreign players is the Chinese government's preference for technology transfers.
 
"China is more interested in tech transfers rather than buying whole systems or products from Western companies," he said.
 
A large part of China's cleantech push involves scrubbing emissions from the nation's hundreds of coal-fired plants. The government is halfway through a program to add 562 cleaner burning coal-fired plants.
 
 
Many Chinese towns and cities also are running out of clean water under the strain of industrialization. Beijing is forcing companies to adopt water-saving technology and install water-saving devices in new buildings and projects.
 
This provides an entree for Nalco. It offers multiple technologies that cut nitrogen oxide and sulfur dioxide emissions from coal-fired plants.
 
Nalco, which had $4.2 billion in sales last year, saw its China sales surge 30% on a noncurrency adjusted basis in 2008. When adjusted for a stronger dollar, its China sales were still up 18%.
 
The 80-year-old company opened a $25 million plant in Nanjing last year, its second in China. It added a research center to its other plant in Suzhou, near Shanghai. It also has moved its Asia headquarters to Shanghai from Singapore. Nalco has 554 employees in China.
 
"China is a huge growth opportunity for us," Nalco CEO J. Erik Fyrwald said in an interview in New York City. "The confluence of market opportunities -- the need for industrial water treatment and the focus on increasing their water supplies and the air pollution issues -- gives us a tremendous market opportunity there."
 
Nalco sells industrial processes in China that let factories use less water and curb harmful discharges into local water supplies. The emerging-market play was one reason investment guru Warren Buffett took a 6.4% stake in late 2008. He has since raised his stake to 6.5%.
 
 
Afton Chemical specializes in fuel and lubricant additives. Its products include Greenclean, a diesel fuel detergent that boosts engine performance and cuts harmful emissions.
 
Afton in January said it's opening a new research facility in Shanghai for product development and testing. The lab will develop new products and shorten customer response times in China.
 
Jon Rock, vice president of Afton's Asia-Pacific operations, said in a statement that the region is of "critical importance" to the firm.
 
Afton parent NewMarket doesn't break out China sales. But foreign sales accounted for 61% of NewMarket's 2008 revenue.
 
In a March report, Davenport & Co. analyst Todd Vencil said Afton Chemical is NewMarket's main business and makes up the whole of NewMarket's dominant petroleum additives segment. In 2008, petroleum additives generated $1.6 billion, or almost all of NewMarket's total revenue.
 
China has a potentially huge market for petroleum additives. Its Ministry of State Security reported in December that there are nearly 170 million motor vehicles in China, second only to the U.S.
 
Vencil noted in his report that NewMarket expects little growth for auto fuel additives in mature markets such as the U.S. and Europe. But it expects emerging economies like China and India to see higher growth rates as per capita standards of living rise.
 
Climate-change issues also should force China's government to focus more on emission controls that will benefit the fuel additives market.
 
Meanwhile, China Green Agriculture, one of China's biggest fertilizer suppliers, forecasts sales to surge 40% to $31.6 million in fiscal 2009, which ends this month, as it expands capacity amid rising demand.
 
China Green does most of its business via its Shaanxi TechTeam Jinong Humic Acid Product unit. Shaanxi produces and distributes humic acid liquid compound fertilizer in 27 provinces. It boasts a national distribution network and advanced research and production facilities.
 
China Green CEO Tao Li said in a statement late last year that only 25% of fertilizers used in China are organic. He sees that nearing the 50% rate, comparable to the rest of the world, within five to 10 years. Li expects his company's net income to rise 26% to $12 million in 2009.
 
Surging demand for organic fertilizers in China is tied to the degradation of farm land from chemical pollution, shortages of arable land and the need to produce healthier crops for China's growing population.
 
China will need 10 million hectares of additional arable land by 2030 to ensure food security, according to the China Daily.
 

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