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The rise of home-grown cleantech innovation in China – A new Cleantech Group report

Stephen Marcus

China has already transformed its reputation from a country with little concern for the environment to being the world’s largest cleantech manufacturing hub. We sense that we are now seeing the start of a major, new shift: from ‘Made in China’ to ‘Created in China’ in cleantech. China is emerging as a source of cleantech innovation and valuable IP, the implications of which are currently under-estimated by many cleantech stakeholders.

According to the Cleantech Group’s new report, ‘The rise of home-grown cleantech innovation in China’, the shift is primarily being driven by the government’s dual focus on enhancing both its cleantech industry and R&D capacity. There are currently over 1,600 government supported incubators and science parks in China and most new government R&D funds will invest, at least in part, in cleantech. China’s cleantech industry has already been responding to the massive surge in funding for innovations and start-ups – it already ranks fourth in the world in terms of patent origin across six key clean technologies, surpassing many advanced OECD economies.

Government initiatives and R&D spending have created a plethora of opportunities for Chinese cleantech companies in a variety of sectors which in turn have leveraged a vast amount of global interest. For example, in 2009 cleantech venture capital investment in China was greater than that seen in some of the most active European countries such as Germany and Norway. Moreover, investment levels in China are likely to increase because 55% of Limited Partners either want to expand or start investing in China over the next two years. Already in 2010, a flurry of new venture capital and private equity funds have raised capital and are earmarking capital for cleantech in China. These include both foreign and domestic (RMB) funds. Details of these funds are in the new report.

It is clear that the common game plan of American-backed cleantech innovations penetrating Chinese markets is changing. However, one must be careful not to over inflate where China’s cleantech innovation is today. China stills need to collaborate with companies and investors from other countries that have a longer heritage of cleantech innovation and expanding new industries. The report provides insight about the forward-looking cleantech enterprises and corporations that have already taken a new approach to cleantech in China whereby they are sourcing local ideas and expertise. These may be role models for others who decide to invest in Chinese cleantech innovations in the future.

There is no doubt that China’s cleantech innovation will present a plethora of business opportunities to all types of foreign companies. Venture investments, acquisitions, joint ventures, partnerships with R&D centers, joint development agreements, government-to-government collaboration, NGO alliances and technology transfer are all ways in which foreign companies can invest in China’s cleantech innovation. And we should expect more cross-border investments involving Chinese cleantech firms in the future.

On the other side of that coin, the Chinese government will surely bias the market to home-grown innovation and jobs when it is in a position to do so presenting a new set of risks for foreign cleantech companies. Moreover, the laws pertaining to IP ownership also differ when compared to the West meaning that managing it will require special attention in order to be effective and legally valid. More details of these risks are analyzed in the report.

Over the coming years, China will become a more significant player in the global cleantech innovation landscape. It is therefore becoming more necessary than ever for stakeholders to get up to speed with where China’s cleantech innovation is today and where it is heading. Consequently, the question is no longer whether a China strategy should be adopted for cleantech innovation, but rather how it should be adopted.

The new report is available for download, to Cleantech Group subscribers.

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