|May 23, 2007|
China: Air pollution control in Guangdong
|Guangdong Province has benefited from China's economic reform policy that began in late 1970's. Furthermore, by the end of 2006, Guangdong has absorbed $177.37 billion in foreign direct investment (FDI), representing one-fourth of the national total and accounted for 40% of all international trade between China and other countries. |
In 2005, Guangdong's GDP (Gross Domestic Product) rose to 2170 billion Yuan ($278.9 billion), ranking the first in the country and accounting for about 10 percent of the national GDP. The province's export volume approached $238.16 billion, which is nearly 39.7 percent of the national total, and the province has ranked first in exports nationwide for the past ten straight years. Over 400 of Fortune's 500 enterprises have set up offices in Guangdong and manufacture in the local area. For some time, Guangdong has maintained a vital role in China's economic development.
Unfortunately, the province is now paying a price for this rapid economic development. Public environmental protection awareness and environmental legislation and enforcement have not kept pace with this rapid economic development. The Guangdong Provincial Government didn't pay significant attention to environmental protection issues until the late 1980's. For many years, air pollution in Guangdong has been secondary to other emerging environmental problems, such as drinking water resource protection, wastewater treatment and solid waste collection and disposal.
1.7 million tons of vehicle exhaust fumes are emitted in Guangdong Province every year, and that continues at a very high rate of increase, 10% every year. Adding to the air pollution is rapid increase in acid rain which was rated at 55 percent. In 2005, almost 1.3 million tons of SO2 (sulfur dioxide) were emitted in Guangdong. Dongguan city, the most industrialized area of Guangdong Province, took an unwelcome first place nationwide in nitrogen dioxide (NOx) emissions in 2005. Its frequency of acid rain exceeded 65 percent. Notwithstanding, the sulfur dioxide (SOx) emissions have far exceeded national standards.
Guangzhou and Foshan have become the second most serious acid rain region in China. Major sources of air pollution are motor vehicles and industrial plants, including power stations, cement works, steel mills, petroleum refineries, chemical factories and other industries with fuel burning equipment. However, the most serious focus on the air pollution problem has shifted from traditional industrial emissions (by some estimates there are over 80,000 factories in Guangdong Province) to vehicular emissions.
Guangdong has the largest consumption of vehicles in the whole China market. The total number of Guangdong motor vehicles, including cars, trucks and buses, has exceeded 13 million. These vehicles emitted 80 percent of the province's nitrogen dioxide (NOX) and 90 percent of carbon monoxide (CO). In Guangzhou, for instance, the emissions of CO, HC (hydrocarbons) and NOx from about 1.8 million vehicles -- less than one-tenth of the total number of vehicles in Los Angeles or Tokyo -- are roughly equivalent to those two cities combined. Vehicular emission is the leading cause and the most serious pollution problem in Guangzhou.
At the same time, the electric power industry, which has played a major role in establishing Guangdong's affluent economy, has also significantly affected the air quality of Guangdong. SO2 emissions from this industry accounted for more than 50 percent of the province's total SO2 emission in 2006. In spite of the government efforts to carry out measures to reinforce the regulations and standards of SO2 emission, the problem persists. It is reported that Guangdong had completed installation of flue gas desulphurization facilities for 6,520,000 kw generating units of coal-fired power plants by June 2006. Besides reducing SO2, the next goal for Chinese government is to take steps to reducing NOx. By 2005, there were 20 completed and on-going projects for denitrification in the whole country. Since there are only a few local companies capable of handling these projects alone, this has created excellent opportunities for firms.
The Guangdong Environmental Protection Bureau (EPB) has set the emissions targets to reduce SO2 to 1,200,000 tons by 2010. The Guangdong Government has budgeted 3 percent of its GDP for overall environmental spending during the Eleventh-Five-Year Plan (2006-2010), which equals approximately $8.37 billion. Thirty percent of the funding will come from government allocations, 40 percent from polluting enterprises, and the remaining 30 percent from bank loans and foreign funds. This five-year plan provides a very good opportunity for firms to make substantial sales in this growing sector.
Recognizing that a rapid growth in urbanization and industrialization will create more environmental woes than it can truly afford without comprehensive planning, Guangdong has begun to take steps to address these issues. A series of measures have been proposed for implementation during the Eleventh Five-Year Plan (2006-2010):
According to the Guangzhou Environmental Protection Regulations, all new coal-burning generating units must be equipped with desulphurization and denitrification devices. During the Tenth Five-Year Plan, the installed capacity of coal- and oil-burning power plants was 5,860,000 megawatts. Old medium- and large-scale power plants which are significant air polluters have been urged by the Guangdong government to install desulphurization devices. Denitrification will be a new focus for emission control on coal-fired power plants.
Guangdong Desheng Electric Power Plant has invested up to 300 million on its denitrification project in 2006 which was the first one in Guangdong.
Best prospects for air pollution treatment in the Guangdong market include the following:
The major competitive factors for marketing air pollution control equipment in Guangdong are price and quality.
Local state-owned electric power plants and governmental authorities are the major buyers of desulphurization and monitoring equipment as well as dust scrubbers for cement works.
Guangzhou Flue Gas Dust Control Specialist Corp. is a state-owned corporation founded by Guangzhou EPB and Guangzhou Agriculture, Industrial and Trading General Co. in Dec. 1992. It is the largest and most authoritative entity on air pollution treatment in Guangdong, and can provide different scales of air pollution control equipment itself. This company is aggressive in cooperating with foreign companies, and would be a good candidate for setting up a joint venture in manufacturing desulphurization equipment and dust scrubbers.
Guangdong Provincial Environmental Protection Monitoring Center is a subsidiary of Guangdong EPB. This authority is mainly responsible for the on-line monitoring project system for the whole province.
Yiming Environmental Protection Co., Ltd. is a subsidiary of the Guangzhou EPB. Under authorization issued by the Guangzhou EPB, all foreign environmental protection equipment used by government projects are to be imported through this company. The company also has a branch in Hong Kong which makes its importing business more convenient. Due to its government linkage and background, it could be a good partner as an agent or distributor for marketing in Guangdong.
Market Entry and ObstaclesExporting Directly
Presently, foreign companies are not permitted to directly engage in trade in China, other than the marketing of goods they have manufactured in China. Exporters must use a reliable domestic Chinese agent for both importation to and marketing in China.
Guangzhou, Shenzhen and Zhuhai in Guangdong are three excellent platforms for distributing technologies and equipment into the region, not only Guangdong but also greater China, due to their progress in resolving environmental pollution issues ahead of most other cities. (Within two years all three cities will be linked by overlapping rail systems, shipping lines, and five international airports.)
Personal relationships are critical when dealing with the Chinese and help to ensure the development of business in China. Moreover, an understanding of Chinese culture, customs, language, and business practices will prove invaluable for gaining a substantial market share in the environmental industry. Therefore, it is essential for companies to establish and maintain close relationships with their Chinese counterparts and relevant government agencies in order to work on the local projects. It is equally important that exporters encourage strong personal relationships between their Chinese agents or distributors and the buyers and end-users.
A major obstacle constraining growth in the environmental industry is a lack of sufficient foreign exchange to purchase imported equipment or technology. Companies can run into snags during negotiations with Chinese firms because end-users can not afford expensive imported equipment in addition to the approximately 33 percent import duties (including 17 percent value-added tax).
Manufacturing equipment locally is one of the best ways to overcome this obstacle. Guangdong is extremely receptive to establishing joint ventures for the manufacture of air pollution treatment equipment with modern technology due to a wealth of capital and a strong desire to obtain advanced technology. In addition, Chinese end-users often prefer to purchase joint venture manufactured products because they combine modern technology with reduced prices. Chinese partners can provide cheap labor, facilities, and established industry contacts. Moreover, the Chinese are often able to sift through the extensive and incomprehensible bureaucratic red tape. Furthermore, joint venture enterprises receive tax breaks and other financial incentives from the government.
China's tariffs are relatively high, running 17 to 40 percent for select air pollution equipment and accessories. The following is a list of China's current import duty rates for air pollution control equipment, effective 2006.