innovation challenges in china through

Examining Industrial Innovation Challenges in China through the Lens of Environmental Protection Industry

China Everbright International Limited – Chen XiaopingJune 2013 (Hong Kong)

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Contents

1. Environmental Crisis in China

2. Environmental Crisis Breeds Opportunities for

Environmental Protection Business

3. Innovation and Challenges in the Environmental

Protection Industry in China

4. Conclusion

Examining Industrial Innovation Challenges in China through the Lens of the Environmental Protection Industry

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Rapid economic development underscores environmental problems in ChinaChina’s rapid economic development has caused destruction to the environment and waste of resources and has worsened environmental problems.


Areas affected by acid rain

Polluted river

Polluted waters

Desert

Severely damaged forest

Environmental problems in China

Environment pollution

Affected river

Areas affected by acid rain

Polluted water basin

Desertification

Existing desert

Desertification areas in the north

Reasons of desertification

Over‐breeding and over‐harvesting

Over‐grazing

Areas of severe forest damage

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Water pollution (1)

Cyanobacterial bloom in Dianchi LakeHuaihe River water pollution

Weifang groundwater pollution Red tide in Bohai Bay


Chinese manufacturers discharging wastewater underground Hazardous

wastewater flowing into deep wells

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60.60%27.90%

11.50%

Type I‐III

Type IV or Type V

Poor Type V

68.70%

20.90%

10.40%

Type I‐III

Type IV or Type V

Type V (Poor)

Water pollution (2)

Statistics on Groundwater Quality in China

Source: “Communique on Land and Resources of China 2012”, Bulletin of China's Environmental Conditions 2012, Ministry of Environmental Protection.

Statistics on Water Quality of 61 key Lakes and Reservoirs in China

Statistics on Water Quality of 10 Key River Basin in China

1. Environmental Crisis in China11.80%

27.30%

3.60%

40.60%

16.70% Excellent

Good

Satisfactory

Poor

Very Poor

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Solid waste pollution (1)

Urban waste piling up

China’s municipal solid waste non‐hazardous treatment volume has significantly increased.

It has increased approximately 63%from 80,510,000 tonnes in 2005 to 130,900,000 tonnes in 2011.

Source: China Urban Construction Design & Research Institute

The average clearance volume of municipal solid waste is 154 million tonnes/year from 2006‐2011. It is expected to increase to 210 million tonnes/year in 2015.


Waste clearance volume (ten thousand tonnes) Non‐hazardous waste treatment volume (ten thousand tonnes)

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Solid waste pollution (2)

Urban waste piling up（Beijing as an example）

Photo Exhibition of Wang Jiuliang in 2011 “Beijing Besieged by Waste”

Note: The yellow marks indicate landfills of different scales

Waste piling up outside a small community in Liyuan, Tongzhou District, Beijing


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Solid Waste Pollution (3)

Soil pollution (Cadmium‐Tainted Rice Scandal)


Land contaminated by heavy metals

Farmland polluted by heavy metals

Deformed water spinach contaminated by cadmium

Polluted and deformed vegetable Polluted vegetable

consumed by human

Polluted vegetable used as

animal feed

Soil pollution

Jeopardize the food chain in

China

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Air pollution (1)

1955, Los Angeles Photochemical Smog(400 deaths)

1952, London Smog (12,000 deaths)

2012, Beijing Smog (?)


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Air pollution (2)

Air quality in 74 major cities in China in the first quarter of 2013

Source: Ministry of Environmental Protection of the People's Republic of China, "Air quality in 74 major cities in China in the first quarter of 2013"


44.40%

25.30%

11.50%

13%

5.80%

Standard

Mildly polluted

Moderately polluted

Heavily polluted

Severely polluted

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Air pollution (3)

2012 National Distribution of Acid Rain in China

Source: China Environmental Monitoring Centre


Frequency

Area as a percentage of the

country size

N/A

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63 72 83 100121

142 158

210

338

0

100

200

300

400

2006 2007 2008 2009 2010 2011 2012 2015 2020

2. Environmental Crisis Breeds Opportunities for Environmental Protection Business

Urban and rural sewage treatment (1)

Capacity of waste water treatment in China is growing rapidly

mn cubic meters/day

Source: Ministry of Housing and Urban‐Rural Development of the People's Republic of China

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Urban and rural sewage treatment (2)

Urban and Rural Waste Water Treatment Rate and Target (During the Twelfth Five Year Plan)

Source: Twelfth Five‐Year Plan on National Urban Wastewater Treatment and Recycling Facilities Construction Program

77.5%

85.0%

72%

76%

80%

84%

88%

2010年 2015年

60.1%

70.0%

52%

56%

60%

64%

68%

72%

2010年 2015年

20%

30%

0%

5%

10%

15%

20%

25%

30%

35%

2010年 2015年

Urban waste water treatment rate

County waste watertreatment rate

Designated towns waste water treatment rate

2010 2015 2010 20102015 2015


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Non‐hazardous treatment rate of urban household waste in China(As shown in the chart below)

52.2

62.066.8

70.5

77.8

90.0

100.0

50

60

70

80

90

100

2006 2007 2008 2009 2010 2015 2030

%

Household waste disposal (1)

Source: United Nations Statistics Division, National Bureau of Statistics of China, Ministry of Housing and Urban‐Rural Development


15Source: The National Plan for the Construction of Facilities for Treatment of Urban Household Waste in a Non‐Hazardous Way under the 12th Five‐Year Plan

Incineration20%

Composting3%

Landfill77%

Incineration35%

Recycling6%

Landfill59%

20102015 Target

Household waste disposal (2)The distribution of different non‐hazardous treatment methods of

urban household waste in China (see chart below)


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63.0%

13.5%

5.4%

1.8%

1.8%

14.4%

土地填埋

好氧发酵及农用

自然干化综合利用

焚烧

露天堆放

外运

Sewage sludge disposal

Wet sewage sludge produced by urban waste water plants in China (water content 80%) Generation and forecast (2010‐2015)

Ratios of different sludge treatment methods in China (2010)

2,004 2,241

2,521 2,800

3,080 3,360

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2010年 2011年 2012年 2013年 2014年 2015年2010 2011 2012 2013 2014 2015

Ten thousand tonnes

Source: survey data from h2o‐china.com and quarterly figures from Ministry of Housing and Urban‐Rural Development;“2013‐2017 In‐depth Survey and Investment Strategy Planning Analysis on Sludge Treatment and Disposal in China”


Landfill

Aerobic fermentation and agricultural use

Natural dehydration for integrated usageIncineration

Open dumping

Exported

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Industrial solid waste generation and treatment status

Ratios of common industrial solid waste treatment methods in China in 2011 (Generated a total of 3,265,370,000 tonnes)

Ratios of hazardous waste treatment methods in China in 2011 (Generated a total of 35,140,000 tonnes)

Source: Ministry of Environmental Protection of the People's Republic of China,“Yearbook of Environmental Statistics 2011”


0.1%

59.8%18.5%

21.6% Dumping rate

Comprehensiveutilization rate

Storage rate

Disposal rate

50.5%

23.4%

26.1%Comprehensiveutilization rate

Storage rate

Disposal rate

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Environmental protection industry total value

0.7

2.0

4.5

0

1

2

3

4

5

2005年 2010年 2015年

Trillion RMB

Source: the 10th, 11th and 12th Five‐Year Plan for the Energy Conservation and Environmental Protection Industry


2005 2010 2015

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System innovation

The Ministry of Construction issued the “Opinions on Speeding up the Marketization

Process of Public Utilities” in 2002

Government investment

World Bank and Asian Development Bank loan

Foreign government loan

Government investment

World Bank and Asian Development Bank loan

Foreign government loan

Society capital

Foreign capital

Government investment (diversified investment)

Society capital

Foreign capital

Government investment (diversified investment)

Evolution of investment entities

Evolution of investment entities

Direct government participation

Specialized operational services

Entrepreneurial operation

(Government procurement of service)

Evolution of service model

3. Innovation and Challenges in the Environmental Protection Industry in China

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Business model innovation

Design / Construction / Equipment / Operation (Compartmentalization)Design / Construction / Equipment / Operation (Compartmentalization)

EPC /DBO/BT/ Entrusted operationEPC /DBO/BT/ Entrusted operation

BOT / BOO/TOT（Franchising）BOT / BOO/TOT（Franchising）

Environmental Protection Industrial Park (Circular Economic Park)Environmental Protection Industrial Park (Circular Economic Park)

Integrated Environmental Services / Contract Environmental ServicesIntegrated Environmental Services / Contract Environmental Services


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Focusing on the characteristics of environmental protection industry in China

Technological Introduction

Digestion and Absorption

Integration of Production, Learning and Research

Self-development


Technological innovation

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Industrial innovation challenges (1)

Local protectionism still exists

Project bidding market has yet to be regulated

Market entry and exit mechanisms have yet to be established

Domestic capital market/stock listing system have yet to be improved

Challenges in System Innovation


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Industrial innovation challenges (2)

• The design of national industrial policy is not compatible with the market environment

• Tax incentives and other complementary policies are extremely backward

Challenges in Business Model

Innovation

Challenges in Business Model

Innovation

• Technological standards in some areas are extremely backward or even absent

• Use of research funding and conversion efficiency have yet to be improved

• A severe lack of corporate innovation capability and resources

• A lack of intellectual property protection

Challenges in Technological Innovation

Challenges in Technological Innovation


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Everbright International’s practice of innovation in the environmental protection industry in China (1)

Technological innovation

Mechanical grate boiler Fuel gas purification system Landfill leachate treatment system

Reusable water Water source heat pump


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Business model innovation

Environmental Protection Veinous Industrial Park Model


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InvestmentInvestment

Consultation and Design

Consultation and Design

Technological DevelopmentTechnological Development

…………

Construction Construction

EquipmentManufacturing

EquipmentManufacturing

OperationOperation

Wind powerWind

power Biomass power

generation

Biomass power

generation

Waste water

treatment

Waste water

treatment

Reusable water

Reusable water

Waste water source

heat bump

Waste water source

heat bump

Sludge treatment

Sludge treatment

Watershed management

Watershed management

…………

Soil remediati

on

Soil remediati

on

Hazardous waste

Treatment

Hazardous waste

Treatment

Solid waste landfill

Solid waste landfill

Methane‐to‐energyMethane‐to‐energy

Waste‐to‐energy

Waste‐to‐energy

Photovoltaic energyPhotovoltaic energy


Integrated Environmental

Service

Integrated Environmental

Service

Sector‐wide horizontal integration

Vertical expansion of

industry chain


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Examining Industrial Innovation Challenges in China through the Lens of Environmental

Protection Industry

Conclusion (1)

The environmental protection industryinnovation is still faced with many challenges inthe system, business model, and technologicalinnovation.

I believe that the solution to theenvironmental crisis in China is not about solvingtechnical or funding issues, rather, it is about thegovernment’s courage and determination toimprove the environment, and ultimately thepublic’s awareness to protect the environment andtake responsibility for our actions

Innovation

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Conclusion (2)

I believe that the environmental

protection industry will become a new

driving force for the industrial

development in China

Examining Industrial Innovation Challenges in China through the Lens of Environmental

Protection Industry

Innovation

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Thank you!

innovation challenges in china through

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