Investing in China's Cleantech Revolution

This post is an extension of my comments in the cnbc.com article "2011 Set to be Even Hotter for Chinese Cleantech IPOs" by Trevor Curwin. So to what extent has the U.S. ceded the green-economy lead to China?  Let's start by looking at solar technology.  Invented in the U.S. in the 1950s, solar panels were the proprietary, exclusive domain of America for at least a decade, and after that the U.S.'s first mover advantage, superior post-graduate education and research capabilities could easily have resulted in long-term, defensible business in this sector lasting to this day.  Instead, the situation today is that U.S. solar manufacturers combined are selling approximately $1.5 billion into the global market while China pushes 10 times that, $15 billion per year.  One Chinese company alone, LDK Solar (a Green Alpha Advisors holding), has more than twice the capacity of the entire U.S.-based solar industry with projected 2011 sales of $3.7 billion. 

Why should this be the case?  Why is the U.S. being so thoroughly schooled by China not only in solar but in most areas of clean technology?  Consider Sinovel, China's top maker of wind turbines, which was the last large Chinese cleantech company to go public ($1.4 billion IPO on the Shanghai stock exchange last week).  We like this company for several reasons, but chiefly for those that could apply to many Chinese cleantech companies:  the massive and thus far unwavering support they receive from Beijing. 

 

Critically, China is investing $1.5 TRILLION into cleantech over just the next five years (the U.S. may invest 1/20th of that, possibly less considering the articulated goals the new congressional majority).  This means China will lead in every step of the clean energy process from education to idea to seed capital to successful private firm to IPO.  Count on it.  Also, they're creative leaders.  Sinovel, for example, is making 6 MW turbines (the world's highest in both total MW and efficiency) and is also one of the leaders in the new, more efficient and powerful direct-drive turbines.  Xinjiang Goldwind, China Suntien and many more examples are impressive as well.  Some will call all Chinese advantages (grants, arguably protectionist policies, preferential tax treatment, keeping rare Earth elements for domestic users, inexpensive means of production, etc.) unfair.  And in fact the Obama administration is alleging just that currently at the WTO, and also countering with limited protectionist policies of its own (the U.S. military, hugely supportive of renewable energy, can as of 2011 buy only American solar panels).  But, in reality, if the United States doesn't like China taking the lead away from us, we should try competing instead of complaining. 

Because the fact is that China will continue to do whatever it takes to keep driving its domestic growth and cleantech will be a (if not the) major component of that.  China will not back down from their aggressive green approach any more than the U.S. will from its famously large corn subsidy, or from the billions in subsidies, handouts and tax loopholes it gives to big oil.  Yes, there are some Federal programs for green tech in the U.S., but by and large, our largesse toward the energy industry is overwhelmingly focused on fossil fuels.  And, honestly, China shouldn't slow either their investments or the pace of their cleantech innovations.  Just because the U.S. has failed to make renewable energy and other types of cleantech its highest (or even a moderate) priority, is no reason for it to go to the WTO and try to slow down China or any other nation that does have green priorities.  And in any event, China's innovations on this front will be good for most nations' economies (not, you know, Saudi Arabia's) and for Earth as a whole. Further, it is possible for U.S. firms to take advantage of the cleantech-friendly environment in China.  U.S. firm Evergreen Solar (ESLR, a Green Alpha Advisors holding), for example, is moving manufacturing to China, a move it projects will take it into profitability.  

So, for today, what's the bottom line for the U.S.-based investor?  Well, although the failure of the U.S. to lead the world in cleantech is costing domestic jobs, it does little to limit investors' ability to profit from China's leadership.  Dozens of Chinese cleantech companies are publicly traded, both on foreign exchanges and on U.S. exchanges, both as ADRs and as direct listings.  China can be indirectly played via non-Chinese firms doing business there such as Evergreen Solar.  Green Alpha Advisors is currently taking all these investment approaches and we're always looking for more opportunities here.  The kanji are written on the wall, and fortunately we can choose to profit from China's current rapid progress. 

Finally, lest there be misunderstanding, I don't for a minute think that the U.S. has entered an irreversible decline in the green economy, and I believe it would be a great mistake to underestimate American ingenuity and economic wherewithal.  When America at large wakes up to the necessity of structural economic change based on the next economy rather than on fossil fuels, it will surely reclaim its place as one of the world's great greentech leaders. Last disclosure: the majority of Green Alpha Advisors' holdings are U.S. domestic equities.

Garvin Jabusch is the cofounder of Green Alpha Advisors, LLC and manages The Sierra Club Green Alpha Portfolio -- a unique blend of Green Alpha Advisors' Next Economy universe and the Sierra Club's proprietary green-investment guidelines.

Comments

[Garvin Jabusch]

Anyone interested in this topic may want to read a NYT article posted this afternoon. Good insight into why China is pursuing renewable energy so aggressively: they plan to double their economic output by 2020, and they understand that that will not be possible using only oil.

http://green.blogs.nytimes.com/2011/01/18/pushing-the-energy-envelope-with-china/?src=twt&twt=nytimesscience

[LeighAnne]

Wonderful except on China's progress in cleantech! Had no idea they were investing $1.5 Trillion, WOW. Big ups to the Chinese, and hopefully, we will go from 1/20th of this, to 1/10?

[Garvin Jabusch]

Thanks for the feedback LeighAnne. Obviously this has become a hot button issue. Not only did I write this post because cnbc's interviewing me for their article on the toic got me going, but two days after I posted this, the NYT ran a very insightful "Room for Debate" article on the same subject: http://www.nytimes.com/roomfordebate/2011/01/18/can-the-us-compete-with-china-on-green-tech

[Garvin Jabusch]

Another interesting read for those interested in staying current with this topic.

http://motherjones.com/blue-marble/2011/01/obama-and-hu-talk-climate?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed:+motherjones/TheBlueMarble+(Mother+Jones+|+The+Blue+Marble)&utm_content=Twitter

[binary options]

China and its industries are leading the world nowadays, and apparently there is not much the USA can do about it. Cost production in China cannot be compared to the one in the United States or any other wester country.

[Binary Options]

If i could go back in time 10 years and invest £10 million into china i would. In todays term that £10 million investment would equal around £1 billion ~ near enough. As the economy in china has literally gone up by the thousands.

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