Environmental Technologies Industries

Environmental Technologies Industries

Market Research

Partnering In China's Environmental Sector

Executive Summary

Opportunities and Options

Opportunities in the China Environmental Market

There are two sides to the China environmental market. On the one side is a large and growing market, necessitated by tremendous environmental problems. All acknowledge that China has deep environmental problems, and the government has taken action. It has threatened to and then closed factories that pollute excessively, and to some measure enforced its growing body of regulations. This is coupled with ambitious environmental spending plans. These are aimed at one stroke to reduce pollution and at another to grow the domestic environmental industry.

While these activities are relevant, they do not directly translate to tremendous opportunities for foreign companies in this market. On the other side of the market, growth is still rather slow, price competition is great, and most domestic end-users--industrial or public--remain reluctant to purchase the goods or services of foreign environmental companies. US companies are at a particular disadvantage compared to their European and Japanese competitors due to the greater quantity of soft money available to the latter through national loans and grants.

Accession of China to the WTO would create more opportunities for foreign companies in this market, from tariff reduction to investment rules, but this is hanging in the balance and will certainly not make the market for any foreign company. In sum, there is both opportunity and steep competition in this market. There are opportunities for US companies in this sector, and more will open up, but the market needs to be well-understood and approached smartly.

Options for US Companies in this Market

There are numerous legal and operational options for foreign companies to participate in the China environmental industry. It is important to US companies interested in this market to understand what these are, and their respective advantages and drawbacks. These are assessed in this report, and summarized in this table.

Table 1: Advantages and Disadvantages of Various Market Vehicles

Vehicle	Advantages	Disadvantages
Local Production	Can Accept payment in RMB Can compete better on cost Closer to end-user; faster delivery time, other benefits Many options for manufacturing	Requires investment Could require higher operating costs Potential dangers in Tech. Transfer
JV	Partner may provide some benefits May be easier to get investment approval	Possible theft of technology Must run business with partner More difficult exit strategy
WOFE*	No partner- a free hand in the market	No assistance from partner
Direct Imports	Easier to Protect Technology Lower costs all around	Cannot accept payment in RMB May face import restrictions Products will likely cost more
Rep Office	Cost-effective way to enter market Can understand market better before setting up production	(relative to other direct import options) Operating costs for China presence
Agents/Dist	Very useful for broad footprint of end-users Can provide service	Dangers in losing control of marketing Not applicable for all products
Franchise	No need to be in China	Risk of technology theft, very difficult to monitor/control, little recourse in disputes
Direct Sales (no dist, rep.)	No need to be in China	Operationally difficult, applicable to products with small end-user footprint

*Not an option for engineering companies and manufacturers of those industries that have particular protection (such as steel)

In general, the decision to invest in manufacturing is closely related to the type of product involved and the technological sophistication of such products. If a company's products utilize more common technologies, or if they have viable domestic competitors, then local manufacturing becomes a must in many cases. In the environmental industry, this can go either way, as the range of design and manufacturing technologies in this industry is very large.

If a company's product occupies a critical niche and is not manufactured in China, then it is usually advisable to develop the market on the basis of import sales. At such a time as domestic competitors are able to enter the market effectively, or a strong foreign competitor begins domestic production, then the investment/production decision can be re-evaluated. It is a common misperception of companies that they cannot enter this market incrementally, or that they have to start big in order to show their “commitment” to this market. With a few exceptions, these perceptions are erroneous. US companies are advised to approach this market with strategic flexibility.

The most important thing for US companies considering direct investment in China for sales to the environmental sector is that there be a market for their goods. There are also opportunities to manufacturer in China for export to other countries, and financial incentives to do so, though most foreign companies of any industry prefer to manufacture in China if there are opportunities in the domestic market.

Important Factors and Issues

US companies interested in the China environmental market should keep the following factors and issues in mind when considering entering and/or investing in this market:

Type of Company

Unlike other industries, such as automotive, the environmental industry in China consists of companies different in nature. There are engineering companies, instrumentation companies, traditional environmental equipment companies, and others. US companies should be mindful that each of these may face both distinct investment requirements and domestic competition.

Type of End-user

End-users in the China environmental market vary. The greatest distinction is between domestic end-users (companies, government) and foreign companies operating in China. US companies should have some idea of which of these will likely be their target market, and how to best target them.

Investment Vehicle

There are several legal investment options for foreign companies in the China environmental industry, all of which are reviewed in the report. US companies should be aware of these options, their advantages and disadvantages, and the operational considerations they entail.

Macro Issues and Trends

Companies should keep an eye on three issues in particular: China’s potential accession to the WTO, strength of the Chinese economy and the pace of reforms, and potential flotation of the Yuan. All of these can have significant impact on this industry.

All of these issues are addressed in this report.

Uses of this Report

Purpose and Application

The purpose of this report is to serve as a tool for US companies interested in participating in the China environmental market. The report is not designed to analyze this market in great depth, such as by market size and the like, but to explain what options are available (legally and operationally), what key issues are involved, what other foreign companies are doing in this market, and various strategic recommendations. The report can be of use to US companies of any size, and the companies need not be dedicated environmental companies to find a place in this market.

This report is designed to be a starting point for the consideration of entry or investment in China, and not as the only source of information. It is strongly recommended that companies interested in this market communicate with other foreign companies already on the ground in China, many of which are listed in this report (see List of Contacts). The Department of Commerce is also a useful resource, and can recommend other resources. Finally, before entering this market in a significant way it is recommended that companies make a trip to China to get a better view of the situation in-person.

Key Parts of this Report

This report comprises three main chapters:

Introduction
This chapter takes a brief look at the environmental industry in China, in terms of end-users, financing, government involvement, and opportunities for foreign/US companies.

Strategies and Paths of Entry
This chapter comprises the main qualitative portion of the report, and assesses the strategic options for US companies in the China environmental market, in light of many important issues. These include:

Rationale and Options for Local Production
Rationale and Options for Selling Through Direct Imports
Differences in Options for Engineering and Equipment Companies
Options and Procedures for Establishing a JV or WOFE in this Market
Strategies for Partnering
Options and Recommendations for Investment in Industry Zones
Strategies for Using Agents and Distributors
Foreign Companies Active in this Market
Case Studies of Environmental Projects and Partnership
Analysis of Technology Transfer
Options and Strategies for Subcontracting Engineering Services
The Potential Impact of WTO

Profiles
This chapter consists of profiles of these groups:

24 domestic environmental companies
6 industry zones
3 domestic environmental organizations

US companies interested in this market may consider approaching one of the above companies for partnership, or at the least review them to see what kind of company makes up the domestic competition. The 6 industry zones include one dedicated environmental industry zone and an additional three that emphasize this industry. If a company decides to set-up production in China, they may consider investing in one of these zones, or at the least learn more about what these zones offer. The three domestic environmental organizations may offer useful services to foreign companies interested in this market.

Introduction: The Environmental Sector in China

The Environmental Market in China

In Brief

There are two sides to the China environmental market. On the one side is a large and growing market, necessitated by tremendous environmental problems. All acknowledge that China has deep environmental problems, and the government has taken action. It has threatened to and then closed factories that pollute excessively, and to some measure enforced its growing body of regulations. This is coupled with ambitious environmental spending plans. These are aimed at one stroke to reduce pollution and at another to grow the domestic environmental industry.

In this light the government encourages technology transfer in this area and facilitates this by making foreign investment in this industry easier than others, and setting up dedicated environmental industry zones. The government has also signed various agreements with foreign countries, including the United States, for cooperation and increased investment in this market, along with setting up bilateral environmental associations with both foreign countries and companies.

While these activities are relevant, they do not directly translate to tremendous opportunities for foreign companies in this market. On the other side of the market, growth is still rather slow, price competition is great, and most domestic end-users- industrial or public- remain reluctant to purchase the goods or services of foreign environmental companies. US companies are at a particular disadvantage compared to their European and Japanese competitors due to the greater quantity of soft money available to the latter through national loans and grants.

Ascension of China to the WTO would create more opportunities for foreign companies in this market, from tariff reduction to investment rules, but this is hanging in the balance and will certainly not make the market for any foreign company. In sum, there is both opportunity and steep competition in this market. There are opportunities for US companies in this sector, and more will open up, but the market needs to be well-understood and approached smartly.

Key Government Numbers

Here is a review of some key financial figures on the China environmental sector:

The Chinese government, during the 9^th 5 year plan, stated that to achieve China’s environmental goals during this (1996 through 2000) period would require investment of $54 (450 billion Yuan). This is the first time that this sort of figure has been provided for the environmental sector in a 5 year plan.

China will need annual environmental investments of $10 billion, with about half from overseas. This is according to the head of SEPA, the State Environmental Protection Administration.

Funding for environmental projects in China (loans and grants) from Canada, Europe, and Japan, has exceeded$3.3 billion. That from the US is considerably less.

China will spend between $14.5 billion and $18.1 billion to combat air pollution in 34 major cities. This is according to an anti-air pollution law amendment submitted to the National People's Congress (NPC) in 1999.

China currently spends about 1% ($12 billion) of its GDP on environmental expenses, but aims to boost this to 1.5%. Macro economic statistics in China can be dubious or even false, so statistics like this must be noted in this light.

Foreign investors (including JVs) account for approximately 10 percent of environmental spending in China. Another 10 percent are accounted for by international soft money, from agencies such as the World Bank or donor countries.

Status of the Market

The Equipment Market

The environmental market in China is best thought of as two markets: equipment and services, which refers mostly to engineering and consulting, though could also include training, project management, and other services. There are two main kinds of companies in the equipment market, those that sell dedicated environmental equipment, those that sell equipment used in environmental applications. An example of the first is WL Gore, which sells air pollution control equipment, and an example of the second is ITT Flygt, which sells pumps for many applications including environmental.

At present there is greater demand for equipment than for engineering services, which is especially the case among domestic end-users. There is greatest demand for high-tech and/or niche equipment. Lower technology equipment faces very strong competition, and in most all cases will be much more expensive than competing products produced domestically. Even the high-tech equipment must be priced reasonably, and US companies often register best sales in this market among their lower cost models. There is, for example, demand for this kind of equipment (partial list):

High performance pumps
Process controls
Metering, monitoring, and/or sensor instrumentation (air and water applications)
High performance membranes
High-tech blowers
Specialized high tech air pollution equipment
Specialized wastewater equipment such as oil skimmers, DAF units, and others
Advanced incinerators
Analytical Test Equipment
Advanced (but low cost) equipment to treat sulfur dioxide (in particular) and nitrogen dioxide (top-line not necessary)
Chemical feed pumps
Aeration equipment such as mixers and specialized nozzles
Other niche equipment

For example, if a water or wastewater treatment plant purchases foreign equipment, it is usually because products with the same performance cannot be found in China. For such a facility, this will usually be limited to high performance pumps, metering equipment, controls, and test equipment. This is even the case for a foreign invested plant such as the Baoshan Water Treatment Plant, built and operated by Thames PLC outside of Shanghai. A US company should not assume there is a market for its product in China. Some form of market assessment or market knowledge is highly recommended.

The Service Market

At present there are fewer opportunities in the China environmental market for US engineering companies compared to equipment companies. If China joins the WTO, there will certainly be greater opportunities for foreign companies in this sector, as many legal barriers will be removed, but foreign companies will still have to compete on price and form the right relationships- same as now. In the current market there are two main areas of opportunity for US engineering companies:

1) Contract work for foreign companies with China operations. This can be in design, project management or environmental assessment for the water/ww, air treatment, or HWM needs of a foreign factory. For example, PACT focuses mostly on designing industrial water treatment systems for foreign-invested companies.

2) Participation in foreign funded projects. This has meant soft money, either from international organizations like the World Bank/ADB, or from a specific country. Numerous countries, particularly the likes of Japan, Germany, France, and Scandinavian countries provide funding for China environmental projects provided that the design contract goes to one of their national companies. However, the WB and ABD have been phasing out soft money environmental projects in China, and no longer include this in their soft money lending facility (IDA).

Many in this market believe that opportunities among domestic end-users will arise, but not right away and then only gradually.
Differentiating End-users and Funding

In the China environmental sector, there are significant differences between types of funding and types of end-user, and this is illustrated in the following table. The opportunities differ greatly when the funding is foreign, when the end-user is municipal or private.

Funding

Example: Air treatment for a state-owned company Market: Few opportunities for foreign companies.	Example: Wastewater system for a foreign factory Market: Market not large, but there are opportunities
Example: Water Treatment plant; special project Market: Some opportunities for equipment, few for service	Example: ADB funded project such as Suzhou Creek Market: Foreign companies (both service and equip) desired, but margins can be small

As this figure illustrates, the current opportunities depend greatly upon what product or service the foreign company offers, where the funding comes from, and the end-user.

Municipal/Public End-users

For municipal or public end-users, there are very few opportunities for foreign engineering companies without foreign funding, and even then the margins can be small, and the bidding process extensive. French companies have been very active in this market with French government-sponsored financing, and the Japanese and Germans have considerable environmental loan programs for China. An exception to this is a water treatment plant built and funded (in the BOT model) by Thames PLC of England. However, Thames has had difficulty finding new, domestic-funded projects. US companies can and do compete actively for internationally sponsored projects, and this represents a sizeable portion of the market for US engineering companies in this market.

For equipment manufacturers, the market among public end-users is still tough, but is starting to pick up, as end-users demand more reliable products. US companies in China, while conceding that the market for domestically funded public projects is small, see positive signs coming from this market in the past 1-2 years. For example, Fisher Rosemount has recently received an increasing number of inquiries for its analytical equipment from water and wastewater facilities. Foreign companies have an easier time selling equipment to foreign-funded public projects, though the potential for this market is not as large.

Private End-users

There is little market for foreign services or equipment among private domestic end-users in China. Chinese companies do not feel much obligation to put “unnecessary” equipment in their facilities, and when forced to do so go for the cheapest way, and there are thousands of domestic environmental companies with cheaper products and services waiting to serve them. Only recently, for example, have there been sales of foreign scrubbers to Chinese companies with their own funding. This market will take longer to develop, and US companies should not plan on relying on this market for significant sales in the short or even medium terms.

Among foreign-funded private end-users, the market is limited but there are many opportunities for both engineering and equipment companies. For a variety of reasons, foreign companies that manufacture in China frequently install environmental systems into their facilities. The most common system is a wastewater system, or facets of an APC system. Some of these companies also need either project or assessment work in HWM, and even training. ERM, for example, is sometimes called in to do environmental training in areas such as hazardous waste disposal.

Note: State-owned enterprises (SOEs) here are not considered public or municipal.

Key Issues

Here are some issues of prime importance in this market:

Funding
This is always the first question in this market. Over 80 percent of the funding for environmental projects in China is from domestic sources, and most of this from provincial or municipal sources, or companies. For any endeavor in this market, US companies should always have in mind where the funding will come from.

US Government Assistance
The US Export/Import (Ex-Im) Bank has established an "Environmental Exports Program" which increases the level of support it provides to exporters of environmentally beneficial goods and services, as well as to exporters participating in foreign environmentally beneficial projects. This program affords exporters a special level of support in conjunction with either Ex-Im Bank's Insurance Program or with Ex-Im Bank's loan and guarantee programs. Ex-Im Bank is active in China, though its environmental programs have not been nearly as successful as those of other countries, due to less favorable loan rates amount other issues. Nevertheless, US environmental companies should consult with the bank and other US government sponsored funding programs for application in this market.

For a list of procedures, documents, guidelines and other information, access the Exim website at http://www.exim.gov:80/menvprog.html or www.exim.gov.

Project Approval
Getting environmental projects approved in any country is complex and fatiguing, and this is especially the case in China. US companies should be prepared for this. It should also be kept in mind that projects are not always awarded upon (American’s ideas of) merit, and projects are often divided among several companies, often just for the sake of the division.

Regulations and Enforcement
Environmental laws and regulations in China are becoming stricter and more numerous, though enforcement is arbitrary and inconsistent. An important SOE (like Capital Steel) can continue to pollute, whereas smaller, less important factories are shut down.

WTO
If China joins the WTO, this will have an impact on this market, which is reviewed in Chapter 2.

Notes on Methodology

Methodology Used

This study was done mostly by primary research, which consisted of many in-depth interviews with domestic companies, US and other companies operating in the China environmental sector, and government officials. There was also considerable background or secondary research, particularly for government information. Primary research was important for this study, because it helped to show a better picture of the real situation facing US companies in this market.

This relied heavily on input from US and other foreign companies active on the ground in China. Most of these companies have been active in the China environmental market for many years, and their experiences and challenges are particularly relevant to US companies that will also pursue this market, and will face similar challenges. Companies contacted are listed, among other companies, in the List of Contacts.

Definition of “Environmental”
This report addressees opportunities in the China environmental sector, whether for dedicated environmental companies or companies that sell into this sector among other sectors. This industry naturally encompasses traditional spheres of pollution control and process technology, and also includes areas such as indoor air quality (such as dust collection), though some areas such as automobile emissions companies were not emphasized.

Other Notes:
-The Chinese Yuan, or RMB, is 8.3 to the $US.
-SWT means solid waste treatment
-HWT means hazardous waste treatment
-APC means air pollution control
-WB means World Bank
-BOT means build, operate, transfer
-ADB means Asian Development Bank
-DoC refers to the US Department of Commerce
-WW refers to wastewater
-SEPA is the State Environmental Protection Agency
-SETC is the State Economic & Trade Commission
-MoFTEC is the Ministry of Foreign Trade and Economic Development
-WTO is the World Trade Organization

Strategies and Paths of Entry For US Companies in the China Environmental Sector

Options for US Companies

Market Entry Alternatives for this Industry

It is of high importance to US companies taking a serious look at the China environmental market to understand what the investment alternatives are, and in particular whether to set up local production or to sell to this market through importing products. Several options are available, more for equipment than engineering companies, and which to select depends greatly upon the size, strategic objectives, end-users, and product/service of the company.

The Rationale and Options for Direct Investment

In general, the decision to invest in manufacturing is closely related to the type of product involved and the technological sophistication of such products. If a company's products utilize more common technologies, or if they have viable domestic competitors, then local manufacturing becomes a must in many cases. In the environmental industry, this can go either way, as the range of design and manufacturing technologies in this industry is very large. There are two primary considerations here:

Technology Transfer. Whether technology can be transferred to this market, either officially or unofficially, in the right way. If a company thinks that its design (through reverse engineering) or manufacturing process technology can easily be copied, this can be a prime incentive not to localize production.

Pricing/Market Analysis. Whether the company’ products can be sold in this market without being produced locally. Or, whether key components can be manufactured or sourced in China to lower costs significantly. A market-demand price-threshold analysis is very useful in determining this.

The following table lists possible China market vehicles for the environmental industry and summarizes many of their advantages and disadvantages. The definitions of and particular requirements of these vehicles are covered below.

Advantages and Disadvantages of Various Market Vehicles

Vehicle	Advantages	Disadvantages
Local Production	Can Accept payment in RMB Can (maybe) compete better on cost Closer to end-user; faster delivery time, other such benefits Many options for manufacturing	Requires investment Could require higher operating costs Potential dangers in Tech. Transfer
JV	Partner may provide some benefits May be easier to get investment approval	Possible theft of technology Must run business with partner More difficult exit strategy
WOFE*	No partner- a free hand in the market	No assistance from partner
Direct Imports	Easier to Protect Technology Lower costs all around Less risk, exit strategy easier	Cannot accept payment in RMB May face import restrictions Products will likely cost more
Rep Office	Cost-effective way to enter market Can understand market better before setting up production	(relative to other direct import options) Operating costs for China presence
Agents/Dist	Very useful for broad footprint of end-users Can provide service	Dangers in losing control of marketing Not applicable for all products
Franchise	No need to be in China	Risk of technology theft, very difficult to monitor/control, little recourse in disputes
Direct Sales (no dist, rep.)	No need to be in China	Operationally difficult, applicable to products with small end-user footprint

*Not presently an option for engineering companies and manufacturers of those industries that have particular protection (such as steel)

The two greatest advantages of direct investment in China are:

Companies can accept payment in RMB. That is, companies can be paid in China. This is important in that domestic companies and government organizations often have great difficulty paying in USD. Foreign currency is tightly controlled and thus foreign currencies are often reserved for the most critical portions of a project. This typically means equipment that is not available in China.

Products manufactured in China are taxed much less than their imported counterparts, and there are shipping costs on top of this. Local sourcing for select components will render the final price even less expensive.

These advantages hold true today, but may change significantly if China joins the WTO (see later in this chapter).

As the environmental market in China, while growing, is very competitive, with limited opportunities for foreign companies, starting small and smart, then growing as able is a strategy not to be discounted. Some US companies, after having established a presence in China through a representative office, may decide that this is enough, or may decide to go ahead with direct investment.

Local production means having a manufacturing facility in China, and this can only come through a JV or WOFE, each of which is discussed in greater detail below. There are several operational (as opposed to legal) options for manufacturing:

Making one or more products or components through a mechanical manufacturing process.
Importing key components, sourcing the rest locally, and assembling these.
A combination of these.

The point to emphasize here is that there is considerable flexibility in what qualifies as local production. For example, WL Gore imports its filtration fabric, sources most of its other air pollution system components, and assembles these at its facility in Shanghai. A US environmental company seriously considering setting up local production in this market should consider the all the possibilities in terms of souring, manufacturing, and assembly This varies greatly by product. It may be possible to source 90 percent of components and materials locally and import or manufacture one or more key components.

While there are local sourcing requirements for various industries, most companies in the environmental industry (and in general) that produce in China source for economic reasons, and exceed these requirements. Numerous components, from casings/mounts to steel parts and pipes and numerous others are much cheaper in China and often of acceptable quality. Furthermore, components can be first imported and then sourced locally once the company has found reliable suppliers. This can take time, and is very difficult to do from abroad, so companies may wish to plan for a phased-in approach to sourcing and/or begin to investigate procurement well before local production commences. It is also very smart to check with companies that already manufacture in China (see List of Contacts), and the US DoC.

The most important thing for US companies considering direct investment in China for sales to the environmental sector is that there be a market for their goods. There are also opportunities to manufacturer in China for export to other countries, and financial incentives to do so, though most foreign companies of any industry prefer to manufacture in China if there are opportunities in the domestic market.

Examples of US environmental companies with representative offices in China: Fluor Daniel, CH2M Hill, Fluke Corporation, Donaldson (Torit), Earth Tech.

Options and Rationale for Direct Imports

If a company's product occupies a critical niche and is not manufactured in China, then it is usually advisable to develop the market on the basis of import sales. At such a time as domestic competitors are able to compete more effectively, or a strong foreign competitor begins domestic production, then the investment/production decision can be re-evaluated. It is a common misperception of companies that they cannot enter this market incrementally, or that they have to start big in order to show their “commitment” to this market. With a few exceptions these perceptions are erroneous.

Selling to China through direct imports can take several legal and operational forms:

A representative office only (sales carried out through this)
A network of distributors managed by a representative office
Use of distributors or agents without a rep. office
Licensing agreements
Direct sales to China without agents, licensees, or distributors

Of these, the most common and most effective for the environmental industry are the first three, two of which require a legal presence in China.

Licensing agreements. Licensing agreements, while technically possible, are in all likelihood not a smart option for US companies in this market. This amounts, in essence, to a technology transfer agreement, on a compensation-per-unit basis. There is no effective way for the company to verify sales, and very limited effective recourse if a dispute arises. The only real recourse is the Chinese legal system. As many US environmental companies tend to be of small to medium size, with no leverage in this market, this is probably not the best path to take.

Direct Sales without agents, distributors, licensees. This option does not have the pitfalls of licensing, but operationally it can be quite difficult. This could include Internet sales, though most end-users in this market (and hardly any domestic companies) will be looking to purchase products or services through this channel, or be able to use the required payment methods. This may change in the next several years, but for now this is so. It is also possible to sell equipment with other foreign companies as part of a package, though this would not be selling to end-users in the China market.

It is likewise possible to come to China on occasion to market, preferably from another Asian office. This is more feasible, and some companies do this, but this also has some distinct disadvantages:

If the end-users (or decision-makers) for products are numerous, such as for pumps or other products, this approach will not work. In marketing for large projects, this approach is feasible but the company will need to come to China on a very regular basis to make and maintain relationships and properly incentivize these. This could make costs even greater than it would to have a permanent presence in China.

Use of Distributors/Agents, with or without a legal presence. Whether to use distributors, in what way and to what extent really hinges upon the end-user base for one’s products in China. If there is a large footprint of end-users, it is best to use a wider range of distributors. These can be segmented regionally or by product type. If there are just a few end-users (see AquaGuard case below), a single distributor or agent is probably best.

Subject to serious market-potential analysis, in general, a larger distributor network should be managed directly from a representative office, WOFE or JV in China proper. Successful remote management and communications of a substantial distributor network in China is difficult, and instances of success are rare.

Another advantage of managing such a network "in country" is that it allows for the network to be grown in a rational and controlled fashion. Foreign companies have frequently run into channel management problems by trying to establish their distributors too quickly. The problems in establishing a distributors network typically encompass the following:

Insufficient knowledge of the distributor.
Insufficient knowledge of the Chinese market.
Insufficient knowledge of Chinese business practices.
Insufficient knowledge of government regulations and authorities.
The need for market education.
The need for distributors to have sufficient technical and product knowledge.
Immature, or not sufficiently localized financial and contractual procedures and arrangements.
Communications between distributors and channel management personnel.

Establishing a Representative Office. Several US companies active in this market in China highly recommend establishing a representative office before making a direct investment. This is advisable for these reasons:

This will allow the US company to become more familiar with the market, and get a better picture of what the market for their products and services are, and what the customer wants.

This will also allow for the company to both promulgate their brand and start to make key relationships, both of which are very important and in China can take longer than in western countries.

This will allow for the US company to get a much better idea of the operations side of the environmental business in China: costs, procurement, laws and regulations, and perhaps most importantly, market practices.

A representative office, while it cannot accept payment in RMB, and cannot manufacture, is a convenient vehicle for sales of imported products, which are paid for through standard import procedures (eg, letters of credit). Representative offices can market products or coordinate distributors to do so, bringing management and coordination that cannot be done effectively from overseas. Provided that the products can be imported legally and in a cost effective manner, and that there is a market for these, all the important aspects of a company’s operations (marketing, channel management, payment pathways, legal standing) can be carried out effectively and with cost efficiency through this vehicle.

Environmental Industry Investment Guidelines

As of early 2000, there are no specific investment regulations for the environmental industry in China, and no regulations that distinguish US companies from other foreign companies. Officially, The Environmental Protection Office of Energy Saving & Comprehensive Utilization Department and the SETC have the primary responsibility for developing the domestic industry, while SEPA in practice is still actively involved. A group of government agencies lead by the State Economic & Trade Commission (SETC) and the State Environmental Protection Agency (SEPA) is currently researching the procedures of investment and technology transfer for this industry, and will at a later date make formal recommendations to the National People’s Congress. Even then, some of these proposals may be superceded by the WTO agreement, if and when China joins this organization.

The laws that currently govern investment into the China environmental sector depend upon what product or service the foreign company provides. In terms of the environmental industry, some of the investment laws that government equipment companies are different from those governing service (which normally means engineering) companies.

Specific investment guidelines and procedures as they currently stand are provided below, and it is also advised to access the full set of official guidelines and procedures from the Ministry of Foreign Trade and Economic Investment (MoFTEC). The US DoC follows these issues closely and should also be consulted for updates.

Establishing a JV in the Environmental Sector

Options

Establishing a joint venture is the cheaper of the direct investment alternatives. Basically there are two types of Joint Venture in China: the Equity Joint Venture and the Cooperative Joint Venture. The primary difference between these two is that the Cooperative Joint Venture is a contractual arrangement that may, or may not, be a legal entity as well depending upon the nature of the contractual arrangements and the intent of the partners. Cooperative JVs are more common for project-based cooperation and for trail "engagements" prior to the marriage that an equity Joint Venture represents. Cooperative Joint Ventures are also more common for smaller companies.

In general, foreign participation in joint ventures can be segmented into service companies (engineering and consulting) and manufacturing (equipment/product) companies.

In either case, Chinese law stipulates that foreign contributions must be no less than 25% of contributed investments. Some sectors receive further restrictions (i.e. engineering - see below), while others are treated more liberally. With companies participating in the environmental sector covering such a wide range of products, services, technologies and industries, it is imperative for each case to be researched completely and treated in its specific circumstances.

In practice there is a great deal of variation in the application of such contributions, and in the approval of various ventures. Regional policies, domestic partners, specific industries and various loopholes all commonly impact the organization and approval of joint ventures.

For US engineering companies that want to be paid in China and/or manufacture in China, a minority stake in a JV is at present the only official option. Foreign companies are not allowed to own more than 49% of an engineering JV, and cannot establish a WOFE in the country. Some foreign engineering companies are able to operate and get paid by having a local design institute sign off on their projects, but this operational short cut does not constitute official status and entails several forms of risk (legal, payment, quality, etc.). If an engineering company does not need to be paid in RMB, there is no compelling reason to establish a JV in China. While most foreign funded projects are not paid in RMB, but in $US, local projects for foreign companies in China (such as for a factory) may require payment in RMB.

Most foreign equipment companies that want to participate in the China environmental sector can take either a majority or minority stake in a JV, or even go 50-50. This applies to most kind of environmental equipment where there is a market for foreign products, but may not apply to lower technology products (such as steel products) where the domestic industry receives greater protection, and there are few opportunities for technology transfer. If there is the option to take a majority stake, this is usually advisable, as it is the majority partner that controls the management and finances, and thus the company.

For environmental equipment, the latter point is the most important. Many US or foreign companies that invest directly in China to sell environmental products choose to partner with a domestic company in a joint venture not to save investment costs, but to take advantage of the partner’s sales channels and relationships. This is particularly the case in business-to-business markets such as environmental because, in contrast to consumer markets, the personal relationships needed to sell expensive pieces of equipment takes considerable time and effort to develop. Also, for both equipment and engineering companies, domestic companies (particularly well-connected ones) can be very helpful in dealing with government relationships and bureaucracy.

Naturally, the main disadvantage of a JV- even if the US company has a majority stake- is that the company has to operate in China while married to a domestic company. This is not an inherent disadvantage, but many of the following things can and do happen:

Cultural and business differences are hard to bridge, and hinder operations.
Products and technology may be copied
The domestic partner does not carry out its responsibilities
Exit strategies and getting cash out can be more difficult

The most common JV problem is one of cooperative intent. This can be traced to two main root causes.

One. It is often the case that either the foreign partner, the Chinese partner, or both, comes to the Joint Venture with short-term income objectives and is not really oriented toward the medium and longer-term development of the project. This inevitably leads to JV failure when placed against the normal operational and managerial difficulties of operating in China while bridging a wide range of operational and communications issues.

Two. The second is one of control. It is frequently the case that the Chinese partner will exercise effective control over the JV, regardless of equity participation. Typically this is because the JV staff will be brought over from the Chinese side. These people tend to retain their parent company world views, objectives and relationships, creating effective, even if not official, Chinese control of the JV. Successful JVs have dealt with this problem in several ways, the most typical being patience and continual, in-depth participation, interface and communications. A less typical, but more immediately effective method is to organize a clean slate wherein JV managers are responsible for hiring all JV personnel. In this case a deliberate attempt is usually made to restrain Chinese partner personnel from dominating key positions within the JV.

Examples of US environmental companies with joint ventures: Fisher Rosemount (several JVs), Environmental Resources Management (ERM), WL Gore.

Procedures

The procedures for establishing a JV are clearly defined. After the US (foreign) company has reached agreement with the domestic company, the proposed joint venture must be agreed upon and approved by various government ministries. For the environmental sector, if the company is clearly an environmental company, and will sell mainly to the environmental sector, then there is an additional ministry.

First, agreement is needed from the following ministries:

Local Mo FTEC (Wai Jing Wei)
Local State Administration of Industry and Commerce (Gong Shang Ju)
Local SEPA (Huan Bao Ju) (for environmental companies)

Then the JV must be approved by the following national ministries in Beijing:

MoFTEC ( Wai Jing Wei)
State Administration of Industry and Commerce (Gong Shang Ju)
SEPA (Huan Bao Ju) (for environmental companies)

The domestic partner in many cases is very helpful in getting the local ministries to sign off.

The requirements can vary by location and industry. Not all Chinese partners are capable of shepherding this process effectively through to approval. U.S. (foreign) partners are highly advised to retain professional assistance in this regard as there are a number of areas where homework and verification performed in advance will save considerable time and expense. The retention of professional assistance may also lead to an early exposure of unqualified or disingenuous prospective Chinese partners.

Documents Needed for Application Joint ventures and Cooperative Enterprises (the original is needed unless otherwise specified)

Application report of the Chinese project unit
Contract and constitution of the joint venture or cooperative enterprise
Duplicate of Chinese business license of the Chinese side (with the seal of the Administration for Industry and Commerce)
Legal business certificate from foreign country
Credentials of the legal representatives of each party
Credit certification of each party
Appointment letter of directors and recommendation of general manager and vice general manager.
List of directors
Resume and identification card of Chinese directors
Checklist of imported materials
Approval of related managerial department should be attached to the state-controlled projects
If the import and export license is involved, the permit and quota instructions issued by the Ministry of Foreign Trade and Economic Cooperation shall be supplied
Advice letter of the name registration and approval of joint ventures and cooperative enterprises
Application form for registration of foreign-invested enterprises
Registration form of legal representative of foreign-invested enterprises
Other necessary documents

Common Hybrid Investment Forms

Under China's evolving regulatory environment there have developed a number of investment formats that take the appearance of the Joint Venture, but operationally work as a WOFE. These are typically legal, but care must be used as with some formats as they are clearly illegal under current Chinese law. Some foreign investors have made the calculated bet that a marginally legal structure will eventually be opened and/or legally recognized. There are many instances of this. In telecommunications, foreign companies that partnered with China Unicom in operating ventures clearly did so illegally, and have been called on it - with resulting significant losses. On the other hand, retailing ventures of many companies, likewise clearly in conflict with existing Chinese law, have been allowed to continue and are being legalized.

The most important of these alternative structures is the structuring of a large majority holding (cooperative or equity) in the range of 95% to 98%. This basically amounts to the Chinese side "renting" itself (its name and legal status) out for an annual fee. This is common in industries where joint ventures are allowed, but WOFE's are not.

There are a variety of such strategies now active in China. Extreme caution must be used when entering into such a structure. Again, the specifics of the case must be researched and the assistance of a professional third party who is experienced is highly recommended.

Establishing a Wholly Owned Foreign Enterprise (WOFE) in the Environmental Sector

Options

The WOFE is currently the most popular structure for foreign investment in China. This is due to both the increased legal acceptance and support for the format from the Chinese government as well as the low success rate for joint ventures in general - and all of the horror stories implied therein. For companies that want to sell equipment to the China environmental sector, a WOFE is a possibility, but for an engineering company it is not. According to Chinese law, foreign engineering companies are not allowed to establish WOFEs in China, though this will likely change with WTO. In general, it is best to go with a WOFE unless the partner offers something truly valuable.

The main advantage of establishing a WOFE in this or any sector in China is that the foreign company can operate freely without having to cooperate with a domestic partner, and all the disadvantages that this can entail. At the same time, the foreign company forgoes advantages such as access to existing sales channels, local knowledge in sourcing, and help in government relationships. For equipment companies, the investment requirements (registered capital) are normally lower than the necessary operational investment, so this should not be a major hurdle. It is really a decision of whether the foreign company wants a domestic partner.

Examples of US environmental companies with WOFEs: BHA New Environmental Technology, PACT, General Signal (Lightnin Mixers)

Procedures

Like the Joint Venture, the procedures for establishing a WOFE are now well established. The approving authorities are the same, and many of the document submissions are the same. It is important to remember that the Chinese authorities typically scrutinize WOFE investments more closely than JVs with the objective of ensuring that it fully complies with relevant policies (both published and unpublished). In general, with the Chinese authorities' emphasis on capital investment and technology transfer, there is a preference for foreign companies to enter into joint venture agreements. The realities of declining foreign direct investment, regional competition, and the general dissatisfaction with the overall success rate of joint ventures has forced a gradual, and continuing, loosening of WOFE investment regulation application. It is thus very important to investigate the issues of WOFE investment on a case specific basis with the assistance of professional, local (PRC) expertise.

Wholly Owned Foreign Enterprises
(the original is needed unless otherwise is specified.)

Application form for registration
Constitution of foreign-invested enterprise
Feasibility study report
Registration certificate and legal representative certificate (recent certificate issued by the registration institution), if it is invested in one’s own name, house property certificate and domicile certificate shall be offered.
Notarized trust deed that the legal representative gives to the trustee
Credit certification issued by the savings bank of the company
Balance sheet of the company for the last three years
Plan for the balance of income and expenditure
Checklist of imported materials
Approval of related managerial departments shall be attached to the state-controlled projects
If the import and export license is involved, the permit and quota instructions issued by the Ministry of Foreign Trade and Economic Cooperation shall be supplied.
List of the directors (with the signature of the legal representative of the foreign company and the official seal)
Letter of appointment of general manager and vice general manager (with the subscription of the legal representative of the foreign investment company)
Application form for registration of foreign-invested company
Registration form of the legal representative of foreign-invested company
Other necessary documents

Strategies for Using Agents and Distributors

Using Agents and Distributors in the Environmental Sector

Using agents or distributors is an option to companies with an official China presence or those without. This really applies only to sales of products, or equipment. Foreign environmental service companies may have partners or affiliates in different parts of China, but these are not classified as agents or distributors. For a US company whose products have only limited application in China, or that wants to get into this market incrementally, this is a strong option. For example, LMI, whose chemical feed pumps use leading technology, but do not constitute a huge market, has been able to penetrate this market successfully through use of distributors, managed from a representative office.

Agent/Distributor Search - CHINA

Exporters! Qualified representatives are out there and our Agent/Distributor Search (ADS) Service can help you find them.

Looking for representatives in China to expand your business and boost your export sales? We will locate, screen, and assess potential agents, distributors, and representatives for your business.

If your firm is small or new to export, or if you don't have resources for research or overseas travel, this service provides an easy, economical, quick-access opportunity to enter the burgeoning China market.

You will receive information on up to six potential agents or distributors, screened from a large pool of candidate firms. Normal turnaround time is 30 to 45 days after we receive your company’s product literature. Each report is developed from on-the-spot research by U.S. Embassy staff.

Cost-effective: For a fee of $250 for each product line -- the cost of a few phone calls to China -- the ADS service provides the contacts you need to launch your marketing efforts in China.

As a next step, if you plan a visit to China you may also order our Gold Key Service for appointments with prospective agents and distributors and key government officials responsible for your industry. ADS clients are eligible for a 25% discount on the Gold Key Service.

To order your ADS, contact your nearest U.S. Department of Commerce District Office or U.S. Export Assistance Center and ask for the Agent/Distributor Service (ADS). A trade specialist will verify your product's marketability, help you prepare product literature packages, and assist you in sending your product information to us -- or to other markets. China is a regionally diverse market, so order a separate ADS for each region: Northern and Central China (Beijing), Eastern China (Shanghai), Northeastern China (Shenyang), Southern China (Guangzhou), and Southwestern China (Chengdu).

In conducting an ADS search, we try to serve our U.S. client well by casting our net broadly. Existing agents in China are extremely likely to learn of our search even if we do not contact them. Therefore, under no circumstances can we promise confidentiality or guarantee that an existing agent will not know about the search. In fact, we strongly advise
our ADS clients to tell their existing representatives up front. Please consider this policy before deciding whether to proceed with the ADS.

What you will need:
your check, issued by a major U.S. bank for $250 (for each product line) paid to "The U.S. & Foreign Commercial Service" at your nearest U.S. Export Assistance Center.
to use the ADS service, 51% of each product line must be U.S. content.
twenty sets of your product brochures and twenty one-page letters of introduction on your company letterhead targeted at the prospective agent to introduce your company and product
tell us if you already have representation in China (see note above).

To contact your nearest Commercial Service District Office/U.S. Export Assistance Center,
Call 1-800-USA-TRADE or visit www.usatrade.gov. In Beijing, call the U.S. Embassy at 6532-6924.

Options for US Companies

When considering the use of agents or distributors for the China environmental market, US companies should consider the following issues:

Choosing a Distributor or Agent. Companies can either choose a general agent (sometimes called first level agent) or a series of independent companies. There are companies in China that specialize in selling environmental products, though many of these will carry products from competing companies, if not competing products. According to many of these companies, as long as they do not sell the same basic models of different companies, there is no conflict- though US companies may not see it this way. If a US company chooses to have a network of independent distributors in China, and have no presence in this country itself (such as through a rep. office), they should really consider how these distributors will be managed.

If a company aims to sell lots of smaller units (such as LMI), then a larger network is often better. If the aim is to sell large units or packages of equipment (see Aqua Guard below), then a single distributor or agent may that has access to the right relationships and information sources may be best.

Segmentation and Control. This can be either through geography (region) or by product type. There must be some means to segment or divide responsibilities, or else poaching can become a real problem. Also, while some distributors/agents operate nationwide, many are regional, and their sales scope should be limited to the region in which they are strongest. Normally regional segmentation is the cleanest and best way to set up and manage a network, and if there is only one product then this is a given.

Credit. Whether to give credit to distributors or end-users is a key consideration. One US company says that its distribution network has been a success precisely because it does not give credit of any sort. In some cases, distributors will offer credit themselves, while the foreign company bears no responsibility to do this. They are usually in a better position to do so, as they know the end-users better, and often know who will honor the arrangements. It should be kept in mind that legal debt collection remedies in China are only marginally effective, time and resource intensive and the process is often stacked in favor of the local enterprise. Thus credit, if important and necessary, should be offered by the distributor. If trusted and capable distributors have been established, then policies and financial arrangements between the manufacturer and the distributor can be organized so as to facilitate wider credit availability.

Service. Companies with no presence in China need a way for their products to be serviced. This can include installation, training, along with after-sales service. A domestic company will frequently balk at purchasing a product, with reason, if there is no dedicated service provider. If a company wants to set up sales offices throughout China, or make an arrangement with a company that already has these, this is one way to solve the problem. Otherwise, they may have to rely upon the distributor to do so. In this case, it is of particular importance that the company pick distributors that can do the service well. Otherwise, it will reflect negatively upon the foreign company’s brand in China.

In some cases, foreign companies have developed separate service networks on a contractual basis. There are currently several major state run companies that specialize in this business. Such a company might be an option for a foreign company that needs nationwide coverage. Alternatively, such a network can be established and coordinated through a general agent, a representative office or more substantial investment structure.

Other considerations. These include length of contract (normally one year), sales incentives, means of penalizing distributors, inventory and spare parts, assistance in importation of products, and others.

Recommendations for Using Distributors

The basics of finding and using distributors in China are the same as in the United States. The following characteristics are desirable:

Familiarity with industry, product and application,
Familiarity with customers,
Sufficient business experience and scale,
Sufficient technical capabilities,
Ability to communicate effectively,
Good credit and reputation,
Others.

In addition, it is often critical in China for the agent/distributor to have good relationships within the government or other end user group. In China such relationships are called Guanxi. Guanxi is often talked about in conjunction with doing business in China. It is extremely important, especially in project-based work. Guanxi does not usually (but sometimes can and does) replace price and quality, but it always makes the difference in highly competitive situations. It is also critical in discovering business opportunities in the first place.

Recommendations on Direct Investment

If a company thinks that they can make it here, then setting up the investment is just a matter of procedure. Investments, if done according to law, are almost always approved, though some take longer than others. As environmental products are diverse, the government’s official position on investment in these products is mixed. For example, the government thinks that in general domestic water treatment equipment is at or near international standards, so does not encourage investment in this sector but does not officially restrict or ban it. No US company contacted for this report could recall a legal investment in the environmental industry rejected by the government.

The Decision to Invest
It should be re-emphasized that the most important decision is whether or not to set up local production, and in what capacity. Direct investment does not need mean millions or tens or millions of dollars invested, nor very high operating costs. Unless one is a completely dominant, large player, such as General Motors ($1.5 billion invested), it is often best to start small and grow as the company’s sales grow, and as a company gains a better understanding of the market. It is likewise possible to invest incrementally. For example, General Signal started in 1995 with investment of only $500,000, and grew its market in mixers slowly. This is also important because in the environmental market, end-users can be very slow to switch suppliers, purchases or contracts can be infrequent, so business is slower to develop than in many other industries.

Small Investment, small costs
Some foreign companies, when they come to China to scout investment, are somehow lead to believe that they need to come in with a bang, and that the market will receive them with open arms. Companies that set up manufacturing facilities have tended in the past to have excessive operating costs, which often means too many expatriates. For example, an American pump company (NASH Engineering), which sometimes supplies pumps for environmental operations, has one part-time expatriate in China, whereas its competitor (a subsidiary of Siemens) has five. Large US companies such as General Electric are the leaders among foreign companies operating in China in localizing management, and US companies with an eye on this market should take note. There is no better facilitation for the Chinese market than to have good local staff.

Yet, localization can be carried to an extreme. There is fierce competition for qualified senior level management, technical and sales staff in China. There have been many instances of local staff, being far removed from direct supervision, not having long experience or deep roots in the company, getting into various forms of trouble. These have ranged from management methods and decisions, to business practices to outright fraud or other kick-back related activities.

Consult with the Right People
The US DoC (or www.usatrade.gov) is a good source for environmental companies that want to invest in China, as this is one of the industries they pay particular attention to, and they know the ropes. It is also invaluable to talk to US or other foreign companies that have a presence in the China environmental market. As mentioned in Chapter 1, these people know the market first hand, and can be excellent sources for learning what to do and not to do.

Strategies for Partnering

Finding the Right Partner

There are basically three instances in which a US company may have to find a partner in the China environmental industry:

To form a Joint Venture
To find an agent or distributor
For sub-contracting of engineering services

What follows is most applicable to the first point, which is finding the right JV partner. The other areas are addressed in other parts of this chapter. Assuming that a company has decided that a JV is the best way to go, the following recommendations are provided:

Key Variables to Consider
There are many variables to consider, and a few key ones:
Technology transfer
Type of Domestic Company
What the US company wants out of the domestic company
How the domestic company will fit into the US company’s long-term China strategy

Figure out what you want out of a partner. For an environmental equipment manufacturer, this could mean access to an existing sales network, relationships, help with the government, or filling procurement and subcontracting needs. Depending upon the strategic needs of the US company, all of these can make sense, and the domestic company should be assessed in some measure on its ability to fill these needs. For an engineering company, project leads and relationships, the ability to get projects approved, and relationships with subcontractors (of themselves providing these services) are of more importance. There are, again, few examples of US environmental engineering companies establishing joint ventures in China. An environmental engineering company may strike up informal partnerships with domestic design institutes, but these are not contractually binding (unless on a per-project basis).

Identify Potential Partners. One place to start is the profiles of domestic companies listed in this report. This, however, is a small list, though it is not difficult to get a list of companies in a particular product category from the government or US DoC. There are thousands of environmental companies in China, though some consolidation is happening. Another place to look is several of the industry zones listed in Chapter 3. Four of these zones, Yixing in particular, have numerous environmental companies and will probably have an idea of which companies are looking for foreign partners. Another good method of finding potential partners is through exhibitions. There are several environmental exhibitions per year in China, in various cities (the Shanghai exhibition is normally in November). These are great places to meet companies, network, and learn about the industry, though bringing an interpreter may be necessary. Some key exhibitions are listed in the List of Contacts, and the DoC may have information on other (eg, regional) ones. Finally, many of these companies have their own websites, which are normally in Chinese, but still a way (with some assistance in Chinese) to do initial investigation before coming to China.

Consider the type of Company
There are few reasons for, and many reasons not to do a joint venture with an SOE (or collective). There are growing numbers of stock and private companies now in China, so teaming up win an SOE is merely an option. The key is to form a balance, in terms of power and benefits. SOEs can be powerful, and may have strong influence in the local or provincial governments (of which, technically, they are a part). If the American company is of some size, like Emerson Electric (Fisher Rosemount) or ITT, there is more balance. Combining a small US environmental company and an SOE of some size can create problems. No domestic companies, SOE or not, should be expected to follow the letter of the agreement made without an incentive to do so. It is particularly risky to bring in technology, through an official transfer or not, and at the same time give the partner control of the market distribution. Much environmental technology, while advanced, is less difficult to reverse engineer compared to other technologies. A company may find itself competing against its own product within a short period of time.

Investigate the Company.
This is a given in any partnership, but in China is not a formality, and should be especially thorough. In most cases, an off-the-shelf or off-the-Internet finance report will not do. It is useful to contact the company’s clients, suppliers, and even competitors for some background information. Companies in China often keep several sets of accounting records, so inspecting the candidates’ books should be done with this in mind. Probably the most important thing is to feel comfortable with the management of the company after intensive dialogue: that they understand the basics of your business, that they know what to expect, and that they are reasonable people.

Investigation should, ideally, be conducted both in person and through the use of in-country service providers. In addition to a direct site visit and discussions, it is highly advisable to do serious research into potential partners. The following is a checklist of materials and actions that are recommended prior to final selection of a distributor:

A list of customers and interviews of customers
A list of suppliers and interviews of suppliers
Other companies represented and related interviews & recommendations
Bureau of Industry and Commerce Registration Number
Copy of Business License - verify that the scope of business is appropriate and legal.
Clear demonstration of technical competence
Clear demonstration of sales competence
Clear demonstration of ability to communicate

Some of these should be taken care of in-person, others may be contracted. The local DoC representative can assist in arranging such service providers. There are also private parties that will do this for a fee, some on a custom basis and some from off-the-shelf material. Such companies include Dun & Bradstreet, Pinkerton, GCiS (authors of this report), some law offices, and various consulting companies.

Investment in Industrial Zones

About Industry Zones in China

A foreign company that wants to set up localized product in China, either with a JV or WOFE, often chooses to do this in a designated industrial zone, which can have these advantages:

Tax breaks
Easier and facilitated registration
Superior infrastructure and transportation access
Proximity to other companies, suppliers, or customers

These zones range across the eastern seaboard, even inland now, and offer facilities (land, utilities) and other benefits for companies to invest. Numerous zones are located in and around the Shanghai municipality. The benefits offered by industrial zones and the rents vary widely, and US companies are encouraged to shop around for the best one. Many industrial zones now even have their own websites, some of which are listed in the appendix of this report. There is, however, no substitute for touring these zones in person.

At present there is one official zone (Yixing) for environmental companies, located in Jiangsu Province near Shanghai, and there are plans for two more, in Dalian and Hebei. Neither of these latter two will be ready in the next year. The details and stated benefits of Yixing are listed in Chapter Three. There are also a few other zones that place emphasis on the environmental industry among other industries. An environmental company may be directed to invest here by the government, though a US company by no means has to invest in one of these zones.

Yixing now has an area of 20 sq km, and a total of 280 companies invested, nearly 60 of which are foreign, and over 50% of which are environmental. Yixing will assist companies in registration and staff housing among other forms of assistance. Yixing offers companies three tax-free years, with the fourth and fifth years at half the rate. The zone is very centrally located, though harbor facilities and major highways are not proximate. For other information on this zone, please see Chapter Three.

Considerations on Choosing the Right Zone

Choosing the right zone depends on several factors:

General Benefits
Where the company’s (potential) clients are located
Where the company’s main suppliers are located
What sort of labor pool the company requires to meet its needs
Price v. Reliability
Owner or sponsor of Zone
Proximity to major city
Strength of Chinese companies in zone

General Benefits. These normally include:

Registration and other services offered
Tax benefits
Infrastructure (power supply, etc.)
Logistics (proximity to ports, to highways, to rail lines)
Price
Facilities

The features/benefits of several zones are listed in Chapter 3. Which of these are most important depend upon a given company’s needs. Some are willing to pay a higher price to be in one of the Shanghai/Pudong or Beijing zones, where infrastructure is more reliable and logistics may be better. Furthermore, WTO may erase many of the tax benefits. Some of these benefits cannot be put on paper. For example, an industrial zone may have an adequate power supply, but this does not mean that it always functions properly. Zone management is also important. It is best to investigate these factors by talking to other companies in the zone.

Location of Clients and Suppliers
If major suppliers and especially clients are in or proximate to an industry zone, this is a major incentive to invest in this zone. In fact, the Yixing Zone believes that this is its greatest benefit. This depends much upon the particular company and its market. Numerous environmental companies have set up on Yixing, though for many of the US companies in this market do not see the benefits of being there, as their clients are scattered around the country.

The Labor Pool. Depending upon the manufacturing skills needed for production, a company may find that its labor needs are not met by investing in zones that are not proximate to metropolitan areas, whereas others may have no problem. If factory skills can be easily learned, location of the zone should not be an issue. A company should also consider whether their business (finance, marketing) executives and staff will operate out of the zone, and if the commute is feasible. This includes the general manager. If this is a US national, he or she may not want to live outside commuting distance of a major metropolitan area.

Sponsor of zone. Some zones are nationally sponsored, and some locally. This is important, because in addition to the quality of the zone, issues such as company registration and operating regulations are also handled or influenced by the zone operators and/or local officials. Some US companies believe that it’s best to stay away from the locally-sponsored zones, with the exception of municipalities with a strong track record such as Pudong.

Choosing the Right Zone

The most important thing is to collect full information on a selection of zones, and thoroughly compare. In addition to touring the zone, it is also a very good idea to discuss the zone with a representative of a foreign company already invested in this zone. A company can start with the zones profiled for this report. Industry zones sell their space, and as in any property market may represent their property for what it is not, so US companies are advised to fully investigate their options. Finally, one US company operating here suggests that there may be greater tax breaks and easier registration by investing in one of the inland provinces.

Market Activity in this Sector

Foreign Companies Active in this Market

Many companies are active in the China environmental market, though among US companies these only represent a small portion of those active in the US market. Relative to other industries in China, in fact, representation by US companies in this market is not strong. Even a dominant player such as US Filter has only recently established a representative office here. The number of non-environmental companies that sell products to the sector is greater than the number of dedicated US environmental companies here. US companies contacted for this study that have entered this market have a good understanding of its challenges, and many but not all are meeting with success.

Engineering Companies

There are both dedicated environmental engineering companies and general engineering companies active in the China environmental sector. CDM is an example of the first, and Black & Veatch of the second.

Engineering Companies Active in China Env. Sector (Sample)

Company	Vehicle	Scope
ERM	JV	Focus on environmental auditing, assessments, training and more, for private and public projects.
PACT	WOFE	Specialists in industrial water and wastewater
Degremo nt	JV	Water Treatment Engineering and Equipment
CDM	HK office	Full service environmental engineering, with focus on foreign-funded projects
Sinosphere	Rep	Environmental consulting and advocacy
CH2M Hill	Rep	Full service environmental engineering, with focus on foreign-funded projects
Thames PlC	JV	Built and operates water treatment plant in Baoshan, Shanghai, with other operations.
Montgomery Watson	Rep	General engineering and construction, including industrial facilities, power plants and the like
Black & Veatch
Fluor Daniel

Environmental Resources Management (ERM) China

ERM is a medium-size environmental engineering company with a five-year presence in China. ERM concentrates on the consulting side of environmental engineering, such as environmental impact assessments, ISO 14000 compliance, hazardous waste management, advise and training Much of its work comes through foreign-funded projects (World Bank, ADB), and smaller projects for foreign companies operating in China.

PACT
With 6 years in China, PACT is a small environmental engineering company that is mostly concentrated in China. PACT has carved itself a niche designing and managing the construction of industrial wastewater and water treatment projects for foreign companies. The company is sometimes called in to modify existing wastewater treatment systems, and manages the process from design to equipment procurement and performance.

Black & Veatch
Black & Veatch is a full-service design, engineering and construction company, with several years experience in China and many projects under its belt. This includes three power plants and many manufacturing facilities. For most of these projects the company takes responsibility for the environmental element of the project, which it often out-sources. Like many foreign companies in China, B&V is localizing to a great degree and tightening operations.

Sinosphere
Sinosphere provides strategic planning, environmental management and socio-economic development services in China. Utilizing capabilities developed from information and experience accrued over the last decade, Sinophere supports decision-making and advocacy for private institutions, industry and development agencies.

Camp, Dresser, and McKee (CDM)
CDM is one of the most active large, full service environmental companies active in Greater China. With significant operations in Hong Kong, and marketing in China, CDM specializes in foreign funded projects. For a given project it can provide services such as project management, environmental assessments and auditing, equipment procurement, and others.

Equipment Companies

US companies selling equipment to the China environmental sector greatly outnumber engineering companies. The disparity is magnified when all the companies that sell products through agents are considered. Many sell equipment on a per-unit basis, while a few offer solutions packages. Several of these companies are shown in the following table.

Equipment Companies Active in China Env. Sector (Sample)

Company	Vehicle	Product
ITT Flygt, Goulds	JV	Various Pumps
US Filter	Rep	All kinds of environmental equipment and project management
Fisher Rosemount	JV(s)	Analytical equipment
Fluke Corporation	Rep	Environmental Controls
BHA	WOFE	APC, with emphasis on indoor air
Donaldson	Rep	Indoor APC
ABB	FE	APC and various solutions
Shanghai Kawamoto	JV	Pumps, Blowers
WL Gore	WOFE	APC Filters
Flottweg GmbH	Rep	Centrifuges, Belt Presses, other WW equipment
General Signal	WOFE	Mixers (Lightnin brand)
Baker Hughes/EIMCO	WOFE	Water and wastewater equipment
AquaGuard Spill Response	Agents	Oil Spill Equipment
Dow Filmtec	Many*	Reverse Osmosis membranes
Nikuni Pumps	JV	Pumps
Monsanto	WOFE	Filtration Equipment
BOC	FE	Water and wastewater (eg, aeration) equipment and solutions
Alfa-Laval	JV	Sludge centrifuges
ALB Klein	Rep	Various imported equipment
LMI (Milton Roy)	Rep	Chemical Feed Pumps

* The structure of Dow in China includes numerous vehicles

Fisher Rosemount
A subsidiary of Emerson Electric, Fisher-Rosemount is one of the world’s leading analytical instrument companies, with a manufacturing presence in China since 1992. In China, the company sells controls, flow measurement equipment, and test equipment for both water and air applications. Fisher-Rosemount has been very active in the industrial (JVs, WOFEs) market, but has only recently received much interest for its products from municipal and public end-users. The company sells equipment package solutions to this market.

General Signal
The Lightnin division of General Signal sells mixers for a variety of applications in China, including water and wastewater. They are sometimes contracted by an engineering company (eg, Fluor Daniel), and sometimes by domestic end-users. General Signal started small, in 1995, and has grown solidly since. Business for them has picked up in 1999, and while environmental is not their largest market, they are optimistic about this market.

Monsanto
The Envirochem unit is a small but active part of Monsanto in China. The unit sells RCO (catalytic oxidizer), and odor control equipment such as Bioton (Monsanto's biobed filter). Naturally, these products rely on chemicals technology. Monsanto sells mostly to domestic end-users, but is getting more interest from foreign-funded companies. These products are currently imported, but the company may set up local production in the short term.

FilmTec
The Filmtec unit of Dow has been promoting its reverse osmosis membranes in the China market for about 8 years, and has gradually increased sales to gain (in their estimate) 40 percent of the market. These membranes are mainly used in water treatment systems.

WL Gore
WL Gore, famous for its Gore-Tex technology, sells particulate filtration systems to both foreign companies and domestic end-users in China. In addition to its proprietary materials technology, Gore approaches this market as a provider of high expertise and systems solutions, and has been fairly successful selling to local companies this way. Gore has a JV in Shanghai.

Case Studies of Environmental Projects

Five case studies of environmental projects by foreign companies are provided below. For reasons of confidentiality, some information has not been included. These cases include:

A wastewater treatment system for a foreign invested company in China
A US Environmental Engineering JV
A foreign-funded municipal project
Selling Equipment through Agents (Canadian Company)
APC Equipment from a US JV

An Industrial Wastewater System for a Foreign Company

PACT, profiled above, installed a wastewater system for a foreign company in Jiangsu in 1999. The actual client was a multinational design and engineering company that built the entire plant. The managing director of PACT has been active in China for over 6 years, and developed PACT to become very well known in this industry among foreign companies. Thus when the client called PACT (being local) was able to respond quickly and at the same time meet the international bidding requirements that the client expects. Being active in this market, PACT is often asked to bid on projects of this nature. The bidding, while not open to every company, was done by invitation to at least 4 companies. The decision came down within 3 months of the bidding.

Client: A multinational petrochemicals company; Polystyrene Plant
Time, Place: Jiangsu Province, 1999
System: Dissolved air flotation followed by extended aeration biological treatment
Bidding: Open, with about 4-5 companies invited to bid
Specifications: Influent high COD, O&G and Hydrocarbons. Efluent COD 80 mg/l; BOD 30 mg/l; Oil & Grease 10; 250 cubic meters per day capacity.
What PACT Provided: Design (including fabrication drawings), engineering, project management, equipment procurement; local design company signed off
Cost and timing: $500,000 (all inclusive), 6 months
Equipment Used:
Dissolved Air Flotation (from domestic company)
Oil Skimmers (from US company, purchased through China agent)
Blowers (from domestic company)
Steel tanks (fabricated by PACT locally)
Many instruments, including inline COD analyzer (from US company)
Total Staff Necessary to maintain system: 2
Engineering Sub-contacted: Detailed engineering supervised by PACT
Why PACT got this Project: According to PACT, they received this contract due to local presence; understanding the requirements of the client, the design institute, and the local environmental agency; combining foreign and local content for a competitive bid and; previous references.
Major Problems/difficulties: None reported.
Other Comments: Each and every contract has its unique challenges that vary with the number of organizations involved in the project. To name some of such organizations: the local contract permitting agency; the local environmental agency; the design institute responsible for the project as a whole; the local municipality, etc.

What US companies should note: Firstly, PACT was able to get this work because they are very local. This means they have good relationships with the general contractor, can accept RMB, can get the project approved and get it done. Secondly, PACT was able to find some equipment, such as blowers, of suitable quality from domestic sources. This underlines the point that the market for foreign equipment in China is very select. Moreover, the foreign equipment was purchased from China distributors for these products, underlying the potential problems from trying to sell products directly to China without some sort of presence in this market.

A Major Multilateral Foreign Agency Funded Project

The Suzhou Creek Project is one of the major multi-lateral, foreign funded environmental projects in China happening at the moment.

Background: The Shanghai Suzhou Creek rehabilitation project (SSCRP). Proposed are a series of wastewater interceptors and collectors for diverting 1.1 million cubic meters a day of industrial and domestic discharges that enter the river through tributaries and canals. A system of pump stations, locks, and gates will help move river water, which tends to stagnate because of tidal influences at Suzhou Creek’s mouth.

Technical Objectives: to achieve Class IV water quality standard in the lower 24 km of the creek and Class III standard in the upper 29 km by 2010. The immediate objective is to substantially remove the polluted water and improve its color and smell by 2000 and to restore Class V standard as an annual average in the lower reaches and Class IV standard in the upper reaches by 2003.

Project Objective. The objective of the Suzhou Creek Rehabilitation project is to remove discolored and foul-smelling water from the creek, restore water quality by 2004, and relocate night soil and solid waste collection wharves along the creek banks. The total project is scheduled to last until 2010.

Funding Agenc y (s): Asian Development Bank and others
Executing Agency: Shanghai Suzhou Creek Rehabilitation Project (SSCRP)
Timeline and Funding: The total project will cost an estimated $876 million. An ADB loan of $300 million has already been secured, the Chinese government will provide some funding, and foreign aid agencies have been invited to provide the remainder. The project officially started in 1998.
Bidding: (for ADB) According to ADB guidelines.

Foreign Companies Participating:
CDM According to CDM, their project review helped secure $300 million worth of Asian Development Bank loan funding. CDM has helped with technical feasibility and cost analyses of planned facilities, and with trouble-shooting strategy decisions. For instance, CDM advised that dredging the river’s heavily polluted sediments is less cost-effective compared to removing pollution sources. CDM is active in this market mainly out of Hong Kong, but is active enough in this market to have established strong relationships with local Shanghai authorities and the same time be able to get things done effectively on the mainland.

ERM ERM is participating in the Suzhou Creek Project by providing technical assistance and other services. The awards for some of these other services are yet to come in. ERM, with offices in Beijing and Shanghai, is well-known by Chinese government officials and frequently called upon to deliver services in this sort of project.

BOC (a British Industrial Gases Company, with a WOFE in Shanghai, recently acquired by American and French interests)- BOC is also bidding for portion of this project, to treat creek pollution by insertion of pure oxygen.

What US companies should note: All three of these companies have a local presence in the China market, and the first two (environmental specialists) also have an active presence in Hong Kong. For a project like this, a local presence is not mandatory, but all three of these companies also maintain active intercourse with the local officials, the SSCRP in particular. This, and because many domestic companies will participate in this, and there could be opportunities for partnering, necessitate a local presence. Moreover, as margins for ADB projects may not be as large as for other projects, it helps to be able to execute in China in a cost-effective manner. Thus while it is possible to market for projects outside of China and then come in and execute them, this case shows that it is advisable to have some local presence. There are, for example, many other US environmental engineering companies as large (or in the case of ERM) much larger than these companies that do not participate in projects like Suzhou Creek.

Selling Equipment Through Agents

Aqua-Guard Spill Response is a Vancouver based company that specializes in oil spill response equipment manufacturing & sales, training and consulting. AGSR is one of the world leaders in this field. AGSR successfully competed for a portion of the Yantai (Shandong Provonce) Oil Spill Response Team procurement. The Yantai project was a model project of the Ninth Five Year Plan. It is intended to be a test bed for oil spill response centers to be established all along China's coast.

Client: The Client was the Yantai Maritime Supervisory Bureau, which is directly under the Ministry of Communications.

Time & Place: The project is in Yantai, located along the north coast of Shandong province. It was originally scheduled to be completed in 1998, but due to project delays is just now being completed as of early 2000.

System: The entire project consisted of oil spill response equipment, team training, response command center, command center communications, GIS system, and command and control response training.

Bidding: The bidding was officially organized according to World bank bidding rules, but owing to shifts in financing and project delays, was ultimately more of a hybrid between international bidding standards and practices and PRC domestic standard and practices.

What was Provided: AGSR bid on the equipment portions of this project. Ultimately AGSR split this order with a European supplier. A wide range of oil spill response equipment was provided (oil skimmers of several sizes and types, motors, pumps, reel hoses, storage tanks etc.)

Use of Agents: All of the foreign competitors used domestic agents to compete for this project. Thus in the end this became a contest between the relationships of the local agents more than a contest between the relative merits of the respective equipment.

The agent for the European competitor is a subsidiary of the Ministry of Communications. This gave them a serious competitive advantage. At the same time, pressures for reform within the government opened up the possibility for AGSR's agent to enter the contest.

AGSR’s Strategy
AGSR's agent's strategy was two-fold. The first, short term, objective was to be successful in the immediate project by securing a portion of the Yantai order. The second, longer-term objective was to secure its own, even stronger relationships within this area so that it could become progressively more competitive as further projects come on line. AGSR was successful in this first objective, winning approximately 40% of the imported equipment order. In addition, the fierce competition between these two agents effectively locked out any other competition from foreign companies not using agents or using weaker agents. It is too early to judge the results of the second objective.

AGSR contracted one agent for all of China. They supplied all product materials and technical specifications. They also supported the bid with in-country visits and hosting Chinese delegations. In addition to the strength of the agent, an important factor in AGSR's success was the quick and flexible support provided. Requirements changed numerous times during this process, and documentation required was unprecedented in its detail. At one point, AGSR completely redesigned a product to meet Chinese MoC requests, only to have this later dropped from the bid. (AGSR later went on to turn this into one of its regular products and has had excellent market success with it).

Depending upon how it measures the future demand for its products in China, AGSR is considering setting up local production. This would be mostly assembly, with a few key components imported (would not disclose which). The emphasis would be cost-effective production for domestic market sales, and some export to greater Asia.

What U.S. companies should note.
There were several important keys to AGSR's success in this project. The first was flexibility. ASSR was able to move with the process rather than oppose or obstruct it. Second, this shows that for a limited number of end-users, managing the process from abroad without a permanent presence in China is feasible, and going with a single agent is best. This relies greatly on selection of the agent, and having the patience to still with the process, which in this case took about 18 months from start to finish. Finally, this product is very niche, and for more general environmental products this process may have to be modified.

An Environmental Engineering JV

The case of Environomics is unique, but could still offer US companies, consulting and engineering in particular, some insight on entering and operating in the China environmental market.

Establishment of Investment Vehicle
Environomics was established as an environmental engineering consulting JV in China in 1992. At that time, the operating procedures for establishing a JV were less clear, and Dr. Husayn Anwar, the founder, was able to establish this JV without some of the requirements that would apply today (a distinct foreign corporate partner, etc.).

Dr. Anwar had been a frequent visitor to China in the early 1990s, and came to know high officials of the National Environmental Protection Agency (NEPA- since changed to SEPA). These officials later approached Mr. Anwar about establishing an environmental consulting company in China. NEPA wanted to have such a company operating in China that could meet international standards using international methods. NEPA had two particular purposes:

To form a prototype consulting company, that could in turn be emulated by other domestic companies
To train as many environmental professionals as possible.

According to Dr. Anwar, both of these purposes have been fulfilled, with numerous domestic environmental consulting companies started by people connected with the company. Officially, the JV was done with the Chinese Research Academy for Environmental Sciences (CRAES), which is the main think tank of SEPA.

In 1994, ERM took a 40% investment in Environomics. ERM is profiled above and one of the world’s most prominent environmental consulting companies. ERM purchased an additional 35% later.

Operational Structure
While Environomics’ first client was a domestic company, 90 percent of its ensuing clients were foreign companies. Furthermore, the domestic spin-offs and copycats were not able to compete well for foreign clients, as they could meet neither the marketing nor technical requirements of foreign clients. In this JV, the foreign side supplied the expertise, while the Chinese side supplied security (protection from vultures of various kinds), inside information, and some personnel.

Environomics’ main services included environmental auditing, due diligence, ISO 14000, international development and later occupational health & safety issues such as asbestos removal.

Overcoming Challenges
The company was able to start rather successfully, gaining $600,000 in its first year and gaining many clients. There were some challenges, however, both internal and external. While Environomics maintained a good relationship with the most senior members of SEPA/CRAES, others in this organization that it had to work with on an operational basis were not so helpful, may not have been placed in the JV based upon level of ability, and were not able to contribute much to the general effort. Dr. Anwar and crew dealt with this through attrition: having resilience and working with the people to work out a good system. This took two years at the minimum.

Environomics/ERM was also denied projects because they refused to pay kickbacks, but Dr. Anwar believes that they made them stronger in the end (see below).

What US companies can learn from this.
What Dr. Anwar, (now running Sinosphere-listed above) can recommend to US environmental companies from his experience with Environomics is summarized here:

1) Recommendations on Management
Don’t merely choose a Chinese general manager because they are of Chinese (Han) ethnicity. Foreigners should realize that while they are ethnically Chinese, people from Hong Kong and Taiwan are not considered locals by mainland Chinese and may not bring the insights, connections and implementation ability that a local would.
It may be best to choose a foreign manager who is relatively young, knows the field (the technical side), and has a great deal of drive
The foreign manager should be in China because they want to be, not just as an assignment. Furthermore, the manager should work to establish a strong Chinese team, which will form the base of operations.
The home office should listen to their person in China, and not dictate to them in an uninformed manner. Furthermore, the home company should not try to just see things through the eyes of their Hong Kong or Taiwan office.

2) Be patient, and be resilient. Don’t expect immediate results.

In terms of investment vehicle, Dr. Anwar recommends first coming to China with a representative office, and then investigating potential partners. Too often companies come to China and approach SEPA, which may recommend a partner based on connections rather than suitability. Acquiring an engineering company in China may be an option, but this is not recommended by Dr. Anwar because most of these companies will have practices, management and relationships that are unsuitable to run the company in the right way, and will be very difficult to change.

On the operations side, it is recommended to hire two key Chinese personnel right away. One being senior, who knows the system from the inside and can network and get information. The other being junior, who can be trained on the technical side and learn things the right way. Companies are also recommended to get out of the US consulting-business mode. This does not mean altering the technical service, but rather being flexible in areas like billing, marketing, management and the like.

Dr. Anwar strongly cautions against using kickbacks to get projects. While this is common in China, and some projects can only be brought in this way, this can create problems for an environmental (or any company’s) long term success in China. If a company develops such a reputation, then kickbacks are always expected, it will turn some clients off, and attract the wrong elements.

Always be vigilant, and never relax.

Environmental engineering and consulting companies in China should target domestic end-users. This market may not be strong now, but is growing and a company needs to be active in China for some time developing this market before it will bear fruit.

For an APC Project

WL Gore, profiled above, was contracted for an air pollution project in Xinjiang in November 1999. Gore got this job through aggressive sales work. As noted above, Gore has a JV in China and sells to many clients directly. The company purchased this system due to tightening local regulations. In its 3-4 years actively selling these products in China, Gore has concentrated on taking the high road in terms of expertise and service. It is more expensive than the locals, but is perceived by many end-users as an expert in this field and works on educating customers about its systems and APC in general. Gore has also placed a strong emphasis on training its sales staff to have this expertise.

End-user: A domestic cement company
Date, location: Xinjiang, China, November 1999
Contaminants to be treated: Cement kiln dust (particulate plus gaseous emissions from process)
Particular pollution control requirements: Particulate: 50mg/m3
Size of Project: Approx. 10,000 m3/min (effluent)
Service Provided: Gore will perform the engineering consultation at no charge and also supply the system, consisting of high performance Gore-Tex membrane filters.
Engineering Outsourced: Gore found a local company to engineer and manufacture the “baghouse,” which is the actual filter system. Gore will provide guidance and design parameters that determine the key operating parameters.
Bidding: Open (no further comment)
Lifecycle: Gore expects about 5 years from the current bag system, at the current parameters.
Testing: The client will do its own testing (aside from any government inspections)
Key(s) to this project: Professional sales effort by Gore representatives trained to sell
Problems: None reported
Key problems after operation: As of this study, system not yet fully operable
Success of Project: Gore considers this a key success.
Project cost: The project cost about $1 million (all inclusive)

What US companies can learn from this case.
In the first place, this shows that it is possible to sell engineered equipment to domestic companies, from their own budget, and shows an example of greater government enforcement of environmental regulations creating opportunities in this industry. Second, this shows what a strong sales force can do, both in terms of reach (Xinjiang is in the remote Northwest part of China) and ability. If this product were sold by a standard distributor, it should not be taken for granted that they could provide the expertise required for this system and/or convince the client to purchase this system. Gore believes that from its experiences in this market, Chinese customers respect and appreciate thorough, professional and
educational selling approaches.

Strategic Issues in this Market

Technology Transfer

Technology Transfer in the China Environmental Market

In the light of investment in China, technology transfer comes in two forms. First there is the contractual sale or transfer of technology to the domestic (Chinese) party. This may be a product, a process, a component or even a method of management or control. The second form is the unofficial way, wherein foreign parties (the domestic partner or another party) learns the technology through other means. This is usually legitimate, such as a manufacturing process, but sometimes constitutes theft. Sometimes technology transfer is a prerequisite for investment, and sometimes a way to obtain a larger stake in a JV (in lieu of a certain amount of registered capital), and sometimes a pure sale.

The demand for technology transfer in this market is driven by several forces:

The Chinese prefer to produce domestically. The reasons for this are a complex mixture of political and economic factors, but come down to the fact that too many people in China still view competition and production as a zero-sum-game, and react accordingly.

End-users and the government bodies that influence these industries in terms of policies, loans, appointments and the like have a bias toward products that are made in China.

It’s just easier to develop an industry through buying, copying, or stealing technology rather than developing it oneself. If foreign parties are willing to participate in this, by the lure of a huge market, then the strategy is successful.

There are specific regulations on the official transfer of technology to the domestic partner in a joint venture, which are summarized below. Those transfers considered large must be made through the Foreign Economic and Trade Committee, while others can be approved by provincial or municipal departments. In the environmental industry, it is again important to distinguish between equipment and services, as the regulations governing these are different.

Whether a US company should transfer technology to a Chinese company in the environmental sector depends largely upon their goals in this market. Few foreign companies transfer there most recent manufacturing or other technology to China, so transfer does not entail this. For example, in the environmental industry, a German company set up a JV in Yixing environmental zone with a transfer of second-most recent generation of incineration technology, including manufacturing technology. The most recent generation remains in Germany.

The practice of technology transfer and the reasons behind it will not come to an end with WTO. These go quite a bit deeper than any treaty agreement, and will take years to change. There is also the fact that parts of WTO will be very difficult to monitor and enforce (see below).

Official Classes of Technology Transfer

As mentioned above, technology transfer can take many forms, and this is recognized by the government likewise. According to MoFTEC, these are officially recognized forms of technology transfer:

Patent Permission and Transfer
Proprietary Technology Permission and Transfer
Importation of Computer Software
Brand Permission and Transfer (regarding points 1 and 2)
Technology Consulting
Other Technology Services
Cooperation in Design, research, and implementation
Cooperation in manufacturing/production
Import of equipment and production lines
Import of special equipment
Others

According to MoFTEC, all organizations with the right to conduct business in China may introduce or transfer technology into China, or appoint a third party to do so. Technology transfer must be in accordance with PRC rules of investment.

Environmental Technologies In-Demand in China

There are many environmental technologies in demand in the China market now, though this does not mean that if a US company brings these to China, either as a product/service or through technology transfer that they will be justly compensated. General areas lacking in technology include air pollution control equipment and engineering, industrial water and wastewater engineering, remediation technologies, and high-tech equipment (eg, instrumentation). These are specific technologies needed:

High power water pumps and other advanced water treatment mechanical products
On-site monitoring equipment
Industrial solid and hazardous waste treatment technology
Advanced monitoring instrumentation
Advanced technology for removal of SO2
Remediation Technology (all types)

Just because a company’s technology is not listed here does not mean there is no demand for it in the China market.

Preventing Technology Theft

Technology theft is a reality in China, and comes in various forms. Likewise, what is considered technology theft in the West, such as patent infringement, is often not seen as such in China. While technology theft, defined by Chinese law, is a crime, uncovering and punishing this can be very tricky, and in most cases not successful. The best solution is not to get one’s technology stolen or compromised in the first place.

There are not measures to protect technology that are specific to the environmental industry. This depends greatly upon whether a company is manufacturing an advanced product in China, using an advanced engineering or monitoring process, etc. It is important to keep this in mind. In general, companies use the following measures to prevent technology theft:

Assess technologies. This means two things. The first is to determine which technologies they want to officially transfer to China. The second is to assess which technologies will be exposed when the company establishes operations in China. The second can be complicated, because this can cover not just products, but processes and even management techniques. It is important to know what technologies are exposed before a company can determine how to protect them.

Scrutinize Staff. As in any country, it is very difficult to determine which staff is not loyal, capable of stealing technology or both. This does not mean that staff should not be scrutinized and monitored for suspicious behaviour, have their background checked, etc. This should be done methodically.

Compartmentalize. This means that staff and departments that have access to technology should not have access to other technology, and in some cases not even have intercourse with other departments.

Use Consultants. There are security consultants like Pinkerton that specialize in working with foreign companies to prevent unwanted transfer of technology. These companies have their own methods, which include compartmentalization and employee scrutiny. These companies emphasize that there are not real secrets to this, but the key is covering all bases thoroughly and methodically. Security consultants will usually work with foreign companies in an advisory capacity or even outsource security functions. There are also international and domestic lawyers that specialize in intellectual property, and protect their clients through the legal system. If a US company makes a technology transfer agreement in China, they are strongly advised to consult with an international law firm with deep practice in this field in China.

Common Sense and Company Regulations. One of the best tools to protect technology is common sense. For example, a highly sensitive manual should not be left in the open. Moreover, as the security consultants emphasize, things like this should be done methodically. Secondly, many US companies that establish operations in China have existing corporate procedures about protecting technology, which should be enforced with particular vigor in this market.

Sub-contracting Engineering Services

What This Entails

In the environmental industry, foreign companies by law are not permitted to do many of the services necessary for project completion. In general, most services beyond the design or management functions must be performed by domestic companies, which leads foreign companies to outsource engineering services in this market. Aside from the law, there are many functions that the foreign company outsources or sub-contracts because it does not have the resources or expertise to perform the functions in a cost-effective manner. Or, the project could be in another province, at a considerable distance from the foreign company’s base of operations. The services are usually, but not always subcontracted to a domestic engineering company/design institute.

Depending upon the project and type of work, this type of work is often subcontracted:

Project Management
Installation of Equipment
All Sorts of Construction
Detailed Engineering (eg, drafting)
Procurement of Local Supplies
Niche Services (for example, drilling)

Possible Arrangements

There are many contexts in which a foreign company will need a subcontractor. For example, a foreign engineering company may be responsible for the design and construction of a project, or just one aspect of this, and will need to subcontract numerous engineering tasks. An equipment company will often need to outsource the installation and integration of engineering systems. It is sometimes possible to circumvent or cut corners on the regulations that constrict foreign engineering companies in China, though this is not officially recommended and should not be considered without considerable experience in China.

The foreign company can choose among selected domestic companies to cooperate with in sub-contracting. These companies must have proper certification allowing them to perform the specific service. (see below) For official environmental projects, these certificates are awarded by the Ministry of Construction and the State Environmental Protection Agency. SEPA can provide this list. One American company with significant operations in China prefers to assign most of the sub-contracted work to the design institute that lends its stamp to the project. This allows the US company to get the chop for a reduced price.

Problems and Solutions

Several US companies that regularly contract engineering services report that this can be very difficult. The main problems, which are seen in many service markets in China, is that work can be below international standards, deadlines are not honored, and sub-contractors demand more fees than the contracted price once the project is underway. It is the latter problem that elicits most complaints among US companies, and it is rare to find a foreign company that has contracted engineering services in China (in the environmental or other sector) that has not run into these problems in a substantial way. At the same time, the foreign company is expected to meet deadlines and stay under budget.

In most cases, there is really no way around subcontracting. Depending upon their contracting needs, US companies that will subcontracting engineering services in China are advised to consider the following strategies:

Pick your own sub-contractors. Sometimes foreign (and domestic) companies are influenced by domestic partners or associates in choosing a sub-contractor. US companies should, however, resist choosing a subcontractor based primarily upon the recommendation of domestic party. The domestic party usually has no ill intent, but in making the recommendation may have their relationship with the subcontractor in mind more than the quality this company can deliver.

Investigate Potential Contractors. Whether recommended by someone else or not, the first thing to do is a little background investigation on the contractor. This should really focus upon relevant project experience, with references from a reputable party.

Do Thorough Due Diligence. Building on the previous point, the role of due diligence is very critical. Basic due diligence should be carried out by you personally, in person, on site. The initial due diligence should be as extensive as possible.

Use frequent visits and inspections. Key suppliers/contractors with problems may require a person on-site full time. Others will need to be visited very frequently in an unanticipated fashion. After time, some good ones will develop and then the regime can relax.

Pay less attention to standard western legal terms and conditions in contracts. The Chinese typically won’t even read these sections. They will flip through to the areas of key concern and most likely not even read the rest.

Must be flexible with Chinese partners and sub-contractors. Many do not understand certain standard (western) business methods. Two examples given were performance bonds and insurance coverage. Many Chinese companies do not understand these, nor do they know how to get them taken care of. For example, one company, when reminded of the 10% (of contract value) performance bond requirement, simply wanted to add 10% to its price, thus trying to restart negotiations. It turned out that they simply didn’t know what such a bond was, had never made one before and had no idea how to go about it. This was a major SOE.

Focus on the People, not the Company. US companies with considerable experience in China recommend that it is the team, particularly the team leader that will make the difference. Thus a reputable design institute with much experience is only as good as the team it puts forth.

Have a Back-up . A couple US companies active in this market choose a back-up contractor for key services in case things with the original contractor go wrong in mid-project.

Consider a Single-source Contractor. This may not be the absolute cheapest way to run a project, but can make for easier management. First make sure that the sub-contractor has the expertise to supervise all the necessary work. It may be best to do this with a company one has worked with previously.

Build a Relationship. This goes for many businesses in China, but needs to be said here because this is how foreign companies best deal with the problems of sub-contracting: find, through trial and error, a good partner and stick with them. This may be necessary for each service, but is the best path.

According to US companies that operate in China and use subcontractors, there are competent, professional domestic companies available for contract. The key is to find and/or develop them to meet your standards.

Regarding the Environmental Protection Design Certificate (EPEDC)

There are regulations, issued by SEPA, that govern environmental engineering in China. The most important is the system of certificates, which companies must have to do projects, known as the EPEDC. As shown here, certain certificates are needed for certain types of projects. These cover ‘environmental’ projects, which range from municipal and industrial air treatment, water and wastewater, SWT and HWT to zoological projects. Also, some projects in China that in the US are classified as OSHA related in China are considered environmental.

First Grade Certificate
Project Type: No limits
Investment: No limits

Second Grade Certificate
Project Type:
Wastewater: Effluent less than 3,000 tons/day, COD under 3 tons/day
Air Treatment Effluent gas under 60,000 cubic meters per hour; single boiler and general industrial kiln dust removal facility less than 60 tons/hour
SWT Excepting hazardous waste
Noise Pollution No limits
Investment: Under 5 million RMB ($602,000)

Third Grade Certificate
Project Type:
Wastewater: Effluent less than 500 tons/day, COD under 0.5 tons/day
Air Treatment Effluent gas under 15,000 cubic meters per hour; single boiler and general industrial kiln dust removal facility less than 20 tons/hour
SWT Excepting hazardous waste
Noise Pollution Can do basic design work
Investment: Under 1 million RMB
Note: Investment refers to engineering investment.

Applying for an EPEDC:
In order to apply for first and second grade certificates, companies need to apply to SEPA along with approval of the local SEPA and relevant governing industry ministry. For third grade certificates, companies apply to the local SEPA. Foreign design companies must have their design qualification checked and approved by SEPA. At project completion, the engineering company is required to turn in the blueprint and design certificate to the appropriate (national, provincial, local) SEPA.

Procedures and Complexities for Getting Engineering Projects

For foreign-funded projects, procedures are complex and time-consuming, but US companies will understand how to proceed, as these will reflect western standards of project approval. The necessary procedures on the government side, as outlined above, can be cumbersome but can normally be navigated without an excessive amount of trouble. The key is to get the project signed off by a domestic design institute whose certification satisfies the project’s scope. These documents are also needed:

Documents Needed for the Domestic-Invested Industrial Projects

Application form of industrial projects
Enterprise constitution or agreement of business in partnership
Capital assessment report
Field certification
Identification card of the legal representative
Feasibility study report

For municipal or domestic-funded projects, the situation is different. Here the process is especially complex and nontransparent. Bidding is often rigged, or used for anterior purposes (for example, to use the ideas or specifications from one company and give it to another). The process can take a long time, seemingly die and then become very active, or fade. The decision-making structure is likewise complicated. As mentioned in Chapter 2, if the foreign company is not bringing funding, the market is very tough. This does not mean that US companies should not pursue projects now, or lay a foundation for future success. Here are a few things to keep in mind:

Get the company established in China. This means setting up some sort of presence in this market, getting the word out, establishing meaningful relationships with authorities and/or decision-makers, and of course getting a feel for the market. Several US companies confide that they lost their first project(s) here only because they were newcomers, and the decision-makers were not “sufficiently comfortable” with them.

Use a trusted representative who can work the inside game. Unless the US company has a significant advantage in funding, there is usually no alternative to this. The representative should know how to work the inside game and at the same time have some sort of relationship or pathway to the decision-makers. Representatives in China often portray themselves in this light, so it is best to be selective.

Note: Many such representatives in China combine relationships with varying degrees of corrupt practices. Great care must be taken in the selection and use of such representatives to ensure that they do not violate the US Corrupt Practices Act. This will sometimes put the US company at a competitive disadvantage when compared to domestic competitors or those from Europe or SE Asia. Nevertheless, many foreign companies report that they have been able to establish themselves without resorting to such measures.

Identify the decision-makers. This is very textbook, but in China can be a particularly difficult task, as there are often several decision makers operating with different influence at different levels. A good inside person will gain a good understanding of this for a particular case, though in some cases this never becomes completely transparent.

Be Selective in Projects. Pursuing even one project will be a great effort, so a company needs to be quite selective in this market in the projects it pursues.

Get a Pilot or First Project. For domestic and foreign end-users alike, US companies in China report that it is of great benefit to have at least one successfully completed project on the mainland, that people can actually go see. Thus the first project need not be of tremendous size.

In sum: If a US company wants to compete for domestic funded environmental engineering projects, they must be in China and must understand how things work in China. This usually means some time invested without immediate gain. Even then, the going may be tough, but otherwise it will be a wasted effort.

The Potential Impact of WTO

Impact on the Market - Reviewing the Potential Benefits

The agreement reached by the United States and China regarding the accession of China to the WTO in November 1999 has generated considerable excitement in the foreign business community. How this will impact business in China, the environmental industry in particular, remains open to speculation, though certain factors are likely to happen.

Import Tariffs. Import tariffs for high technology products will be greatly reduced (with a uniform VAT for both foreign and domestic products), allowing for many kinds of environmental products to be sold in China at a much cheaper cost (please see below for greater details). For lower technology products, such as steel fabrication (used, for example, in water and wastewater treatment), there may still be duties and even if not most of these will remain much more expensive compared to domestic products, and largely un-competitive. As shown below, equipment in the environmental industry falls under different categories, which have corresponding WTO provisions.

The reduction in tariffs will be clear and enforceable. For China not to enact these will mean not to comply with the treaty. This will also give US companies the option of exporting rather than producing in China. This will really depend on the potential for the company’s products, and the company’s China strategy. There will still be many advantages to making direct investment in China, but one of the largest advantages will disappear.

Market Entry. Foreign engineering companies will eventually be allowed to be majority partners in joint ventures or setup WOFEs, whereas now they can do neither.

Technology Transfer. In the short term, there will be little impact on technology transfer in the environmental industry from WTO. In the long to medium terms, provided that China is more compliant than less, WTO will mean greater protection of patent and other types of environmental technology transfer from US companies. It will also mean that US and other foreign companies will receive most just monetary compensation for contractual transfer of technology.

Acquisitions. It will be easier for a US company to acquire a Chinese environmental company, and gain access to its customer base. At present, this sort of acquisition, particularly of a state-owned company, is very difficult and only approved in certain circumstances.

Psychological Impact. This cannot be quantified, but when China joins the WTO there will certainly be a psychological impact, which will affect the environmental market. This is very general, but nonetheless important, and will likely result in greater interest by US companies in this market and perhaps a greater willingness by Chinese companies to cooperate with US companies.

Cautions on WTO

Experts on China caution that even if China joins the WTO, there are certain parts of the agreement will not be enacted, and cannot be audited by international bodies. Implementation is the key. For example, if the government still wants to give subsidies to domestic companies, or unofficially support domestic companies in awarding contracts, there is little that foreign bodies can do to remedy this. Other parts, such as reduction in tariffs and changes in investment laws, will be nearly impossible to avoid, and will certainly be real.

Accession of China to the WTO will create real benefits for American companies in China, though it will not make the market. Companies will still have to compete in a tight (though growing) market with numerous domestic companies.

There is also the possibility, believed by many in the international finance community, that the Yuan will float in the near future. A close examination of China's economic conditions, international trade position and capital accounts (not detailed here) supports this expectation. This will result in a shift in the competitive position between domestic and imported products. It is recommended that any serious investment analysis utilize an exchange rate of RMB10:USD1 after 2001.

Relevant Details of the Agreement

The following details of the WTO agreement, relevant to the environmental industry in China, are provided by the US DoC.

By Category

Eliminating Non-Tariff Measures and Conditions On Investment

China’s commitments to eliminate non-tariff measures and certain conditions on U.S. exports and investment all enter into effect immediately upon China’s accession to the WTO. At that time, China will:

Implement the WTO Agreement on Trade-Related Investment Measures (TRIMs);

Eliminate and cease to enforce trade and foreign-exchange balancing requirements -- which link a company’s level of imports to its level of exports;

Eliminate local content requirements; and

Eliminate export performance requirements.

China will not enforce the provisions of contracts imposing these requirements. Contracts, particularly those establishing joint ventures or wholly foreign-owned companies, frequently contain such requirements as a condition for government approval.

China has also agreed that, subject to the other provisions of its WTO accession package, the government (at the central, provincial, and local levels) will not condition:

import licenses,
quotas,
tariff-rate quotas, or
any other means of approval for importation, the right of importation, or
investment on whether Chinese companies can supply the products -- or on performance requirements of any kind.

Thus China will cannot condition their approval of an investment on whether a company

provides offsets,
transfers technology
uses locally produced goods, or
conducts research and development in China.

Local Content
China has agreed to eliminate local content requirements immediately after it accedes to the World Trade Organization and not to enforce provisions in existing contracts that impose this requirement.

These commitments combined with the other market-opening steps that China will take, such as cutting tariffs, eliminating quotas and permitting our companies to distribute products in China, will result in better access for our exports and eliminate false incentives or requirements to use domestic goods.

Technology Transfer
China will eliminate technology transfer requirements and offsets as a condition for investment approval or importation.

The terms and conditions of any transfer of technology will be agreed between the parties to a contract and not imposed by the government.

Exports from the United States will no longer face this barrier and companies that want to invest in China can negotiate these terms without the Government interfering.

China will also have to provide better intellectual property protection for technology that is transferred and eliminate requirements mandating that the Chinese partner in a joint venture gains ownership of trade secrets after a certain number of years.

Other Improvements
Elimination of local content requirements and technology transfer as a prerequisite for an investment approval are only two of the practices that China will eliminate as a result of WTO accession. China will also eliminate export performance requirements and foreign exchange and trade balancing requirements. If these provisions are in contracts, the government will not enforce them.

Similarly, importation and investment will not be conditioned on conducting research and development in China.

By Particular Industry

Environmental Services

Foreign service suppliers may provide environmental consultation services through cross-border delivery, without having to establish in China. All other foreign service suppliers may operate in China through a joint venture.

Construction Equipment

Tariffs
For construction equipment, China will reduce its current average tariff rate of 13.6% by over 50 percent to 6.4%. Reductions will commence upon accession and will be fully implemented by January 1, 2004.

Tendering Requirements
Tendering requirements for non-government purchases will be eliminated within two years of accession.

Trading Rights and Distribution
Currently, U.S. companies’ ability to do business in China is strictly limited because the right to engage in trade (importing and exporting) is restricted to a small number of companies that receive specific authorization or who import goods to be used in production. This limits U.S. exports. China has agreed that any entity will be able to import most products, including construction equipment, into any part of China. This commitment is phased in over the three-year period with all entities being permitted to import and export at the end of the period.

China -- which generally prohibits companies from distributing imported products or providing related distribution services -- will permit foreign enterprises to engage in the full range of distribution services. These rights will be phased in over a three-year period for almost all products, including construction equipment. (See separate papers on distribution services and related services.)

Other Commitments
China has agreed not to apply or enforce export performance, local content, and similar requirements as a condition on importation or investment approval.

To alleviate the uncertainty associated with China’s inconsistent application, refund, and waivers of its 17% VAT tax, China has agreed to apply all taxes and tariffs uniformly to both domestic and foreign businesses.

Scientific Equipment

Tariffs
China will reduce its tariffs on scientific equipment from its current average tariff of 12.3% to 6.5%. Reductions will commence upon accession and will be completed by January 1, 2003.

If WTO Members agree to and adopt the scientific equipment sectoral initiative that originated in APEC, China will join this initiative and eliminate its tariffs on these products.

Tendering
Tendering requirements for non-government purchases will be eliminated within four years of accession.

Trading Rights and Distribution
Currently, U.S. companies’ ability to do business in China is strictly limited because the right to engage in trade (importing and exporting) is restricted to a small number of companies that receive specific authorization or who import goods to be used in production. This limits U.S. exports. China has agreed that any entity will be able to import most products, including scientific equipment, into any part of China. This commitment is phased in over the three-year period with all entities being permitted to import and export at the end of the period.

China -- which generally prohibits companies from distributing imported products or providing related distribution services -- will permit foreign enterprises to engage in the full range of distribution services. These rights will be phased in over a three-year period for almost all products, including scientific equipment. (See separate papers on distribution services and related services.)

Other Commitments
China has agreed not to apply or enforce export performance, local content, and similar requirements as a condition on importation or investment approval.

China has agreed to implement the Trade-Related Intellectual Property Agreement of the Uruguay Round upon accession to the WTO.

China has agreed to join any of the ATL sectoral initiatives, including the environmental equipment initiative, adopted by the WTO members.

Profiles

This outline profiles 23 domestic environmental companies, 6 industry zones, and 3 environmental industry organizations in China. We should note that none of these are officially recommended for partnering, investment, or association.

Domestic Environmental Companies

The following is a profile of 23 domestic environmental companies. While none of these are officially recommended, US companies that wish to enter the China environmental market may consider partnering with one of these companies. This group is only a small representation of the numerous environmental companies in China, and are by no means the only ones to consider, but were selected according to the following criteria:

Attitude toward foreign cooperation. Only companies that would like to cooperate with a foreign company, with or without conditions, are profiled.
Type of company. This varies, but a disproportionate number of stock and private companies are profiled, as this type of company tends to be more market-oriented, and, as mentioned in Chapter 2, may make a more suitable partner for a foreign environmental company. State-owned enterprises (SOEs) and JVs are also profiled.
Geographic mixture. Profiled are companies from the Yangzi River basin (including Shanghai), the Beijing-Tianjin corridor, the Northeast (Dalian, etc.), Guangdong, and some inland cities.
Size. This was not the most important consideration, though in general companies that could be too small for a US company to benefit from cooperation were not profiled.
Experience with foreign companies. This includes both companies with such experience and those without.
Product Type. This varies. Some are design institutes (for engineering), while most produce various equipment.

Co. Name : Kelin Group. Wujiang Baodai Dust Removal Co., Ltd
Telephone No.: 0512-3365-180
Fax Number: 86512-3365-888
Address: Bache Town, Wujiang, Jiangsu
Number of Sales Staff:: 60
Number of Technical Staff: 30
President: Song Qi
Ownership (type): Stock
Major owners: Kelin Group
Year Established: 1979
Products/Services:

Dust removal instruments: pulse and anti-blow. Forty kinds, more than 300 specs.
Incinerators
Installation
Maintenance
Equipment Retrofits

Company Description:
The company started as a manufacturer of dust control equipment, then moved into incineration. Products are mostly sold direct, and the company has a 18,000 sq m factory. There are sales offices in several cities, including Beijing, Shanghai, Suzhou, Chengdu, and Urumuqi.

	97	(%)	98	(%)	99	(%)
Sales Volume ($ million)	2.5	N/a	2.6	4%	3.0	13%

Market Outlook: According to this company, there are many environmental companies in China, even in Jiangsu, but some do not have what it takes to succeed. This company has an advantage in that it knows how to work well with metal, and can perform its own installation expertly. It plans to spend more money and effort improving its incinerator technology.

Example of Recent Project:
Project Name Baogang third-term project –dust removal equipment
Industry Metals industry
Location In Shanghai
Foreign Partner None
Date Completed 1999.11

Experience Working with Foreign Companies: None
Areas of Cooperative Interest: They are looking for a means to acquire advanced technology, particularly in incinerator technology, if it will benefit both parties.
Credit Reference Information: (as available)
Bank Name

Co. Name: Suzhou Xiechang Industrial Dust Removal and APC Equipment
Telephone No.: 86512-7219-202
Address: No. 28, Bei Qing Nian Road, Railway Station, Suzhou, Jiangsu
Fax Number: 86512-7212-786
Number of Sales Staff: more than 80
Number of Technical Staff: 32
President: Mr. Li
Ownership (type): Stock
Owners: Zhenda Industry Stock Co., Ltd. (Suzhou)
Year Established: in 1991
Products/Services:

DCF-Z right-angle electromagnetic pulse valve;
DCF-Y submerged electromagnetic pulse valve;
Pulse spray and blow controller;
Frame.

Company Description:
The company was founded in 1991, and operates throughout China. The company places an emphasis upon service and maintenance. They sell products directly, and do not rely on distributors.

	97	(%)	98	(%)	99	(%)
Sales Volume ($ million)	1.2	N/a	1.2	0	1.5	20

Market Outlook:
Environmental standards are increasing, so the market is better and should improve even more. For this kind of equipment, most end-users prefer imported equipment, but they think that their quality is comparable. In addition, their prices are lower, and they are better able to provide service. They will keep an emphasis on frames, which they sold a total of 50,000 this past year.

Example of Recent Project
Project Name Shanxi Taiyuan Iron and Steel Plant-frame
Industry Iron and Steel industry.
Location Taiyuan, Shanxi province.
Foreign Partner None
Date Completed 1999.11
Experience Working with Foreign Companies: None
Areas of Cooperative Interest: A foreign company that can bring advanced technology and a good reputation. It would also be best, though not crucial that the company be in their part of the industry.
Credit Reference Information: (as available)
Bank Name

Bureau of Industry & Commerce Registration Number (as available)

Co. Name : Jiangsu Yihuan (Group) Co.
Telephone No.: 86510-7551093
Address: No. 169, Renmin Road, Fenshui Town, Yixing, Jiangsu Province.
Fax Number: 86510-7551188
Number of Sales Staff: more than 1000
Number of Technical Staff: about 100
President: Mr. Han Hao-zhong
Ownership (type): Stock (no further comment)
Year Established: In 1976
Products/Services:

Bio-oxidized sewage system
HBR treatment system
Waste water treatment system (use of pure oxygen)
Other wastewater technologies
Maintenance
Design
Installation

Company Description:
This company has been active for over 23 years, and has a factory area of 80,000 sq m. They operate throughout China, with sales offices in almost every province. The company does not use distributors. Jiangsu Yihuan can install complete systems, or just sell the equipment.

	97	(%)	98	(%)	99	(%)
Sales Volume ($ million)	20.5	N/a	9.6	(113)	9.7	1

Market Outlook:
Jiangsu Yihuan thinks that end-users are demanding higher technology, and Yihuan is doing its best to stay on top of this. The company thinks that it is key to hire solid engineers and train them methodically. They expect the market to get better, and think that their position in the market is strong.

Example of Recent Project
Project Name Kunshan Sewage Plant-Supply water treatment system.
Industry Environment Protection Bureau, City of Kunshan
Location In Kunshan Shanghai.
Foreign Partner None
Date Completed In late 1998.

Experience Working with Foreign Companies:
A German company has shown great interest in its marketing position, brand, and fixed assets. (No further comment here). They have also been approached for cooperation by a Vietnamese company.

Areas of Cooperative Interest:
Something that could help them acquire technology on the cutting edge of water and wastewater treatment, and gain greater exposure to the management methods of foreign companies.

Credit Reference Information: (as available)

Bureau of Industry & Commerce Registration Number (as available)

Co. Name : Shanghai Lidu Environment Protection Equipment Co., Ltd
Telephone No.: 8621-5858-2758
Address: No. 178, Longdong Da Dao, Shanghai
Fax Number: 8621-58582758
Number of Sales Staff: 90
Number of Technical Staff: 40
President: Mr. Wu
Ownership (type): Stock (private investors)
Year Established : In 1992
Products/Services:
Small scale Incinerators (medical, solid waste)
HVAC Equipment
After-sales service

Company Description:
They made environment protection equipment when we were founded, mainly medical incinerators. From this year, they have begun to offer incinerators for solid waste. The company markets through direct sales, and relies heavily on promotion through trade exhibitions and other forms of direct marketing. They do not use distributors, and sell throughout China.

	97	(%)	98	(%)	99	(%)
Sales Volume ($ million)	N/a	N/a	N/a	N/a	N/a	N/a

Market Outlook:
They believe that the market for their products and technology right now is very strong, and the potential is great. They are optimistic, and plan to move into new areas of EP in the next few years.

Example of Recent Project
None

Experience Working with Foreign Companies:
Will not comment on this

Areas of Cooperative Interest:
This company would like to cooperate with foreign companies if the foreign company has a good reputation and wants to make a commitment to the China market. A company with incinerator technology would be best, though this company is willing to get into new areas.

Credit Reference Information: (as available)

Bureau of Industry & Commerce Registration Number (as available)

Co. Name : Shanghai Shihua Water Area Environment Protection Plant
Telephone No.: 8621-5794-2673
Address: Bache Town, Wujiang, Jiangsu
Fax Number: 8621-5794-0042
Number of Sales Staff: more than 80
Number of Technical Staff: 20
President: Mr. He
Ownership (type): State-run
Owners: Shanghai Bureau of Education
Year Established: In 1997
Products/Services:

Air tube.
Activated Carbon
Contract project
Design
Construction
Consultation
Training.

Company Description:
This is a relatively newly formed and niche environmental company. Their operations are nationwide, but most sales are in the Shanghai/Jiangsu/Zhejiang areas. The company currently does not have sales offices nor distributors, but are investigating these. Furthermore, they also do design and consulting.

	97	(%)	98	(%)	99	(%)
Sales Volume ($ million)	0.6	N/a	0.5	(20)	0.7	28

Market Outlook:
The market is so-so. It is easier for larger companies to succeed in this market, as they can better use relationships to get work. There will be more acquisition in this market, as there are too many companies at present. There will remain, however, niche opportunities for smaller companies.

Example of Recent Project
Project Name Guangdong Shunde Environment Protection Research Institute
Industry Environment Protection
Location In Shunde, Guangdong.
Foreign Partner None
Date Completed In the first half year of 1999

Experience Working with Foreign Companies: None

Areas of Cooperative Interest:
A foreign company with strong technology in their area, and a strong track record. They could offer strong relationships, good government connections, and local know-how.

Credit Reference Information: (as available)

Bureau of Industry & Commerce Registration Number (as available)

Co. Name : Shanghai Baoma Stock Co., Ltd
Telephone No.: 021-5611-8811
Address: No. 4717, Gong He Xin Road, Shanghai
Fax Number: 021-5640-7094
Number of Sales Staff: more than 40
Number of Technical Staff: 20
President: GM: Fumin Wang, V-GM: Anmin Dong
Ownership (type): Stock
Owners: Shanghai Dabaishu Real Estate Co.
Year Established: in March 1992
Products/Services:

Home air purifier
POU water equipment
Maintenance
Technology instruction

Company Description:
Shanghai Baoma targets the residential market for environmental equipment. It began producing air purifiers in 1995, and POU equipment in 1998. The company is thinking of expanding into industrial applications. Baoma has a 6,000 sq m factory, and operates throughout China. There are 15 distributors within Shanghai, and 10 others in other parts of the country.

	97	(%)	98	(%)	99	(%)
Sales Volume ($ million)	N/a	N/a	1.8	N/a	2.2	18

Market Outlook:
People are becoming more aware of the needs for clean air and water, though this is taking longer to catch on in the North and inland provinces. People want high technology and a good design. At present, for home products, there is greater demand in small cities compared to large ones. The company is very optimistic about its future in this market.

Example of Recent Project
Project Name Air Purifying Machines
Industry Environment protection
Location in Shanghai
Foreign Partner None
Date Completed In December 1999

Experience Working with Foreign Companies: None

Areas of Cooperative Interest: Foreign companies with high technology. This could be in various environmental fields, but water treatment is best. They would like to become stronger in this market, in both products and distribution before entering other markets.

Credit Reference Information: (as available)

Bureau of Industry & Commerce Registration Number (as available)

Co. Name : Shanghai Everclean Environmental Engineering Co., Ltd.
Telephone No.: 8621-6437-5540
Address: 20 Bao Qing Road, Shanghai
Fax Number: 8621-6433-2229
Number of Sales Staff: 30:
Number of Technical Staff: 90% of total employees
President: Chairman: Ms. Sha Shang-zhi, General Manager:
Ownership (type): Domestic JV
Owners: Shanghai Light Industry Graduate School and Shanghai Shenneng (Group) Co., Ltd.
Year Established : In February 1998.
Products/Services:

Ion exchange water treatment instruments
Combined auto waste water treatment instruments
PH/ORP instruments
Distributing (DCS) auto computer control system
Pure water treatment equipment
Waste water treatment
Maintenance
Project design
Project Management
Consulting
Installation

Company Description:
This company was established in 1979, and is an offshoot of the old Shanghai Light Industry Graduate School. They are located in Xinzhuang, Shanghai, and have a 2000 sq m factory. There are offices in Dalian and Guangzhou.

	97	(%)	98	(%)	99	(%)
Sales Volume ($ million)	N/a	N/a	0.22	N/a	0.27	18

Market Outlook:
This company thinks very highly of the China environmental market, particularly for water and wastewater treatment. The latter, they think, will develop faster than the former. They plan to invest much of their income in research and development in the next several years, and expect to bring in numerous projects.

Example of Recent Project
Project Name Wenzhou Meila Ironware Co.-sewage treatment
Industry Metals
Location In Wenzhou, Zhejiang
Foreign Partner A French Company (no t specified)
Date Completed In May 1999

Experience Working with Foreign Companies: Limited- on a project-by-project basis.

Areas of Cooperative Interest:
Companies from Europe and U.S.A. They think that there can be great benefit working together, and would like the opportunity. It would be best if it was in their field.

Credit Reference Information: (as available)

Bureau of Industry & Commerce Registration Number (as available)

Co. Name : Yixing Huanfa Equipment Factory
Telephone No.: 86510-7891161
Address: Gaocheng, Yixing, Jiangsu
Fax Number: 86510-7891161
Number of Sales Staff:. More than 400
Number of Technical Staff:. About 30
President: Mr. Shao
Ownership (type): Stock
Ownership: Private Investments
Year Established: In 1987

Products/Services:
Water treatment equipment (many kinds)
Wastewater treatment equipment (many kinds)
Engineering contract, design, construction and after- sales service.

Company Description:
Yixing Huanfa is a water technologies company, mainly sells equipment but also offers various engineering services. Products are sold directly, and throughout China. The company says that its typical project is to design a water treatment facility for an airport or other municipal facility. They supplied, for example, the Shenzhen and Pudong airports with systems. They have 30 sales offices in China.

	97	(%)	98	(%)	99	(%)
Sales Volume ($ million))	11	N/a	12	8	12	0

Market Outlook:
Sales of imported equipment in China will remain very limited, for certain projects only. The government will continue to protect domestic companies. The market for environmental products and services in China will improve. There should be in the next 10 years, for example, over 600 new wastewater treatment plants constructed. This company is optimistic about the market.

Example of Recent Project
Project Name Shanghai Pudong International Airport, water treatment equipment
Industry Service Industry
Location In Pudong, Shanghai
Foreign Partner None
Date Completed In 1999

Experience Working with Foreign Companies:
Some equipment sales, but no real cooperation (in terms of JVs and the like). They have sold equipment to foreign companies through agents.

Areas of Cooperative Interest: technology
US or European companies which can offer advanced technology will be better. This can be in different types of equipment, either on a project-basis or for other kinds of cooperation. They would like the opportunity to better introduce their company to foreign companies.

Credit Reference Information: (as available)

Bureau of Industry & Commerce Registration Number (as available)

Co. Name : Tianjin Saehan Co., Ltd
Telephone No.: 8622-2676-8440, 8622-2826-2401
Address: 54 Jianchangdao, Hebei District, Tianjin
Fax Number: 8622-2676-8841
Number of Sales Staff:. About 100
Number of Technical Staff:. About 27
President: Mr. Han Zheng-zhi
Ownership (type): JV
Owners: Sahaen (Korea) and a Tianjin SOE
Year Established: In August, 1998
Products/Services:
Large-scale reverse osmosis systems
Systems Engineering

Company Description:
This company primarily relies on their Korean partner for technology, and provides the technical engineering and service function, along with sales . All sales offices have technical staff. Systems are sold for many for industrial applications, but also market to municipal markets. The company guarantees to keep equipment in good service in the first year, and sells products directly, throughout China . There are seven sales offices. They are Beijing, Shanghai, Harbin, Shenyang, Dalian, Qingdao and Weihai.

	97	(%)	98	(%)	99	(%)
Sales Volume ($ million)	1.6	10	1.8	11	1.9	5

Market Outlook:
There are many companies in this industry, but enough work to go around. . The market for wastewater equipment in particular is very strong now. This company will try to remain one of the leaders in this market, take advantage of its North China base, and try to put as many products on the market as possible.

Example of Recent Project
Project Name R/O machine sold to Pharmaceuticals Factory
Industry Pharmaceuticals
Location In Hangzhou, Zhejiang
Foreign Partner Not for this project
Date Completed In Nov. 1999

Experience Working with Foreign Companies:
The JV with the Korean company has improved their sales and their management.

Areas of Cooperative Interest: Companies that can offer something they don’t have are best. This would depend upon the product category. They would also like to do cooperation that would allow them to be stronger in other parts of China.

Credit Reference Information: (as available)

Bureau of Industry & Commerce Registration Number (as available)

Co. Name : Shenyang Environment Science & Research Institute
Telephone No.: 8624-23314470
Address: No.63, Shashanjie, Heping Dist, Shenyang
Fax Number: 8624-23317666
Number of Sales Staff:. 141
Number of Technical Staff:. 50
President: N/a
Ownership (type): SOE
Owners: Shenyang People’s Government
Year Established: 1974
Products/Services:

Industrial waste water treatment technology;
Medical waste incineration technology;
PCB5 industrial incineration technology;
Sulfur dioxide treatment equipment;
Water test equipment

Company Description:
This is a medium to large environmental company, with a full range of equipment for water, air, and hazardous waste treatment. According to the company, they do not spend much effort on sales, but rely on referrals. Most customers are in NE China, with some in other areas. The company does not use sales offices.

	97	(%)	98	(%)	99	(%)
Sales Volume ($ million)	4	N/a	4	20	4.2	5

Market Outlook: The market is good, though not dynamic. Growth has been a bit slow, but they expect it to pick up.

Example of Recent Project
Project Name An industrial waste water treatment project in Yingkou
Industry Industrial waste water
Location Yingkou
Foreign Partner None
Date Completed 1999

Experience Working with Foreign Companies: They are currently under negotiations with a Canadian company for incinerator technology, and have had dialogue with other foreign companies but no concrete partnership to this point.

Areas of Cooperative Interest: They are very interested in cooperating with a foreign company, if both sides will benefit-in any area. The company would also like to emphasize that while they are based in the Northeast of China, their marketing reach covers the whole country.

Credit Reference Information: (as available)

Bureau of Industry & Commerce Registration Number (as available)

Co. Name : Tsinghua Tongfang Co., Ltd. Artificial Environmental Engineering Company
Telephone No.: 8610-62771812
Address: P.O.Box 2659, Tsinghua University
Fax Number: 8610-62770198
Number of Sales Staff: Many (no further comment)
Number of Technical Staff:. Among the employees, 80% are technical staff (engineers).
President: Mr. Lu Zhicheng
Ownership (type): Stock (subsidiary of Tsinghua Tongfang Group)
Year Established: In 1996
Products/Services:

Water treatment equipment
System Design and Engineering
Material sourcing
Installation
Training

Company Description: The company both makes products and offers design services. There is a factory in Miyun, north of Beijing, which the company received free from the government. Products and services are for the most part sold directly, and throughout China.

	97	(%)	98	(%)	99	(%)
Sales Volume ($ million)	N/a	N/a	N/a	80-90	N/a	80-90

Market Outlook: The environment protection industry is still developing in China. This development may take 20-30 years. At the same time, environmental companies are becoming larger and more specialized. Not many companies currently have funds to pay for this equipment, especially the most advanced equipment, but with some effort this industry will develop well.

Example of Recent Project (several)
Project Name N/a
Industry Industrial waste water
Location Beijing, NW China, South China.
Foreign Partner Projects are completed, and negotiations are underway for more. They are negotiating with companies from Germany, USA, Korea and UK. The German company will provide financial support. They will be responsible for technology. The others will be responsible for design, equipment, etc.
Date Completed It’s in the process now.

Experience Working with Foreign Companies:
They have cooperated with many US and EU companies on many projects, and would like to cooperate as much as opportunities permit.

Areas of Cooperative Interest: This is really on a case-by-case basis, though there has to be a solid source of funding. As they are an engineering company, they cover all areas of environmental technology.

Credit Reference Information: (as available)

Bureau of Industry & Commerce Registration Number (as available)

Co. Name : Hebei Zhongfen Environment Industry Company
Telephone No.: 86314-2121605
Address: 6 West Area, Chengde High & New Technology Development Zone, Hebei Province
Fax Number: 86314-2021283
Number of Sales Staff:. More than 120
Number of Technical Staff: More than 30
President: Mr. Shi Yuanlin
Ownership (type): SOE
Owners: People’s Government of Hebei Province
Year Established: In 1996
Products/Services:
Biological wastewater treatment equipment (some in cooperation with US filter)
Engineering and maintenance

Company Description: This company mainly specializes in wastewater treatment equipment and engineering. They produce their own equipment, and also sell products from Finland and technology from US filter. They sell products and services throughout China, with an emphasis on Hebei province. Products are sold directly.

	97	(%)	98	(%)	99	(%)
Sales Volume ($ million)	1.2	5	1.2	0	1.3	8

Market Outlook: The competition is increasing, as there are many companies in the market, and the market still is not very large. Under-developed areas (eg, inland) have more potential, and in terms of industries wastewater has very large potential, as most wastewater in China now is not treated.

Example of Recent Project (several)
Project Name Bailou Hotel project, wastewater system design and equipment
Industry Service industry
Location Hebei
Foreign Partner A Finnish Company (not specified)
Date Completed 1999

Experience Working with Foreign Companies:
This company has a fair amount of experience working with foreign companies (such as US Filter), and these have not been bad, but thinks that price of foreign company’s equipment is excessively high.

Areas of Cooperative Interest: If a company wants to make an investment, and has technology to transfer, they will consider it.

Credit Reference Information: (as available)

Bureau of Industry & Commerce Registration Number

Co. Name : Xuanhua Metallurgical Environmental Protection Equipment Manufacture Factory
Telephone No.: 86313-3067141-3007
Address: N/a
Fax Number: 86313-3067734
Number of Sales Staff:. More than 1400
Number of Technical Staff:. More than 100
President: N/a
Ownership (type): SOE
Owners: Xuanhua People’s Government
Year Established: In 1960’s
Products/Services:

Electrostatic precipitator and other related equipment.
SO2 removal equipment.
Products design
Training

Company Description: Originally founded as a mining equipment company, this company started making APC equipment in the 1970s. They have a 200,000 sq m factory, and a heavy industry equipment workshop. The company operates nation-wide, and most products are sold direct.

	97	(%)	98	(%)	99	(%)
Sales Volume ($ million)	7-8	N/a	7-8	N/a	7-8	N/a

Market Outlook: The state of the market in China now is so-so. The market will develop well in the coming years, but this takes time. To survive in this market, a company must have its own technology. There are too many instances of mediocre technology on the market. Strong management is also important. Things are not easy for APC equipment, but will improve.

Example of Recent Project

Project Name Electrostatic Precipitator for 25,000 ton rotary furnace in Baogang
Industry Iron and steel manufacturing industry
Location Shanghai Baogang
Foreign Partner German Luqi Corp
Date Completed In 1996

Experience Working with Foreign Companies:
This company has performed several projects for foreign companies (French, German, others), though they say that now there is much competition to win these projects. Now they win about one of these projects every few years.

Areas of Cooperative Interest: They are interested in working with a company that has good technology, is reasonably priced, and suitable for this market. Either on a project basis or a more permanent cooperation.

Credit Reference Information: (as available)

Bureau of Industry & Commerce Registration Number (as available)

Co. Name : Guangxi Guilin Environmental Protection Engineering Co.
Telephone No.: 86773-2825650
Address: Guilin Xijiao Hongtouling
Fax Number: 86773-3835612
Number of Sales Staff: More than 70 0
Number of Technical Staff: About 70-80
President: Zeng Jinhua
Ownership (type): Stock (no further comment)
Year Established: In the 1980’s
Products/Services:

Wastewater filtration products.
Design and installation
Technical support

Company Description: Guangxi Guilin EP Engineering sells mostly to industrial end-users, the oil industry in particular. As an oil industry wastewater specialist, they do not operate sales offices. All sales are direct. Most sales are to regions with heavy oil industry, such as the Northeast of China.

	97	(%)	98	(%)	99	(%)
Sales Volume ($ million)	4.6	8	5	8	5.3	5.5

Market Outlook: Guilin EP Engineering sees the market increasing incrementally. New technologies are entering the market, and the importance of controls and automation is likewise increasing. The market will get stronger. Automation of equipment will increase especially. Because of this, there will be greater opportunities for foreign companies, and local companies must update their technologies to survive.

Example of Recent Project
Project Name Wastewater filtration equipment for Daqing, Dagang and Kelamayi Oil Fields.
Industry Petroleum
Location Xinjiang, Heilongjiang
Foreign Partner Gulf Group, Hunan Zhuzhou Branch
Date Completed 1999

Experience Working with Foreign Companies:
They have cooperated with some (such as Gulf) in the past, and think that things have gone well, though sometimes the business can overlap. For example, in one project, both companies had the same type of equipment, and the foreign company insisted on selling its own.

Areas of Cooperative Interest: If the foreign party is willing to invest in them or finance projects. It would also be useful if the foreign company has some experience in Asian markets.

Credit Reference Information: (as available)

Bureau of Industry & Commerce Registration Number (as available)

Co. Name: Dalian Science and Industry University-Environment Engineering Research Design Institute
Telephone No. 86411-3631019
Address: 158 Zhongshan Road, Dalian
Fax Number: 86411-361019
Number of Sales Staff: 125:
Number of Technical Staff: More than 60
President: Mr. Zhou Feng-lin
Ownership (type): State-run
Owners: Dalian Science and Industry University
Year Established: 1995
Products/Services:

Engineering design, construction
Environment evaluation and assessment.
Product Promotion

Company Description:
This company has a first grade environmental engineering design license (see Chapter 2), and sells direct. They operate throughout all of China, but concentrate on the Northeast. They are willing to take on most any kind of project in their area.

	97	(%)	98	(%)	99	(%)
Sales Volume ($ million)	3.4	10	3.8	11.	4	5

Market Outlook: The government is strengthening environment protection. The market in China needs large-scale comprehensive design companies. Competition between domestic companies and foreign companies will be more intensive.

Example of Recent Project (two provided- both for wastewater treatment)
Project Name Fushun Tianhu Beer Factory Xinxiang Chemicals Factory
Industry Food & Beverage Chemicals
Location Fushun, Liaoning Xinxiang, Hebei
Foreign Partner None None
Date Completed In progress In progress

Experience Working with Foreign Companies: None

Areas of Cooperative Interest: They haven ’t thought about it, but would consider if the situation were appropriate

Credit Reference Information: (as available)

Bureau of Industry & Commerce Registration Number (as available)

Co. Name: Shenyang Environmental Science Research Institute
Telephone No. 8624-23314470
Address: 63 Shasha Road, Peace District, Shenyang, Liaoning Province
Fax Number: 8624-23317666
Number of Sales Staff: More than 400
Number of Technical Staff: About 200
President: Ms. Wang Junhong
Ownership (type) State-run
Owners: Ministry of Construction and Shenyang People’s Government
Year Established: In 1963
Products/Services:
Products:
Medical waste incinerators
PCBs industrial incineration technology and products
Services:
Engineering
Product design
Environmental impact assessments

Company Description: In 1963, this company was founded as the Shenyang Coal and Gas Research Institute. In 1973 it was changed to Shenyang Environmental Protection Science Research Institute, and in 1984, to the Shenyang Environment Science Research Institute. The company specializes in products and engineering services to remedy hazardous waste. Products and services are marketed and sold directly, and throughout China. The company holds the national first-class certificate of environmental impact assessment and first-class engineering certificate.

	97	(%)	98	(%)	99	(%)
Sales Volume ($ million)	4	N/a	4.5	11	4.5	0

Market Outlook:
The market is not so great now, particularly in the Northeast. Other areas are not as bad. There is also a trend toward greater consistency and standardization in environmental services.

Projects Completed:
Project Name 1) Waste-water treatment in beer industry (products)
2) Medical Waste Treatment (products and engineering)
Industry 1) Beer industry
2) Medical industry
3) Other industry
Location Shenyang
Foreign Partner Finland Kai Mi Ou Te
Date Completed in 1999

Experience Working with Foreign Companies:
Have worked with foreign companies on a project basis (German, Norway, Finland), but do not have a formal partnership with one.

Areas of Cooperative Interest:
Would like to work with a western (not Japanese) company where there could be good mutual benefit, in whatever way. The foreign partner may also wish to import some its products to their country.

Credit Reference Information: (as available)

Bureau of Industry & Commerce Registration Number

Co. Name: Dalian Daqi Environmental Protection Equipment Co., Ltd.
Telephone No.:860411-7613229
Address: No.8 Tieshan Xilu, Dalian TEDA, Liaoning
Fax Number: 86411-7613230
Number of Sales Staff: 50
Number of Technical Staff: 85
President: Da Xi Jian Ci
Ownership (type): Invested by the Japanese (company not specified)
Year Established: 1996
Products/Services:
Water Purification Equipment
Installation, on site maintenance
Training

Company Description:
This company makes most of its revenues through equipment sales in the Northeast province of China. Most equipment is sold direct.

	97	(%)	98	(%)	99	(%)
Sales Volume ($ million)	N/a	N/a.	N/a	N/a	N/a	N/a

Market Outlook:
The market now is not bad. The government is enforcing regulations more, and this should create more opportunities. It can also help if a company that sells equipment can also supply basic engineering.

Projects Completed:
No comment.

Experience Working with Foreign Companies:
Aside from their cooperation with the Japanese, they have no other partnerships with foreign companies, though have sold equipment to foreign invested companies in China, particularly in the Chemicals and Food industries.

Areas of Cooperative Interest:
They are very interested in working with a foreign company, particularly in the area of water and wastewater treatment, but only if the foreign company is serious about this market and has a strong track-record.

Credit Reference Information: (as available)

Bureau of Industry & Commerce Registration Number

Co. Name: Guangzhou Research Institute of Environmental Protection
Telephone No. 8620-8551-5817
Address: 24, Nanyi Rd., Tianhe Guang He, Guangzhou
Fax Number: 8620-8750-3629
Number of Sales Staff: 100
Number of Technical Staff: 85
President: Director: Mr. Wu Zhengqi
Ownership (type) State-run
Owners: Guangzhou Environmental Protection Bureau
Year Established: in 1977
Products/Services:
Products:
Industrial waste-water equipment
Services:
Environmental protection product development
Environmental legislation and policy study
Environmental impact assessment
Environmental planning
Environmental chemical analysis and test
Environmental engineering design

Company Description:
This is the business arm of the Guangzhou EPB. The company offers a full range of environmental services, holding the national first-class certificate of environmental impact assessment and the metropolitan first-class certificate of environmental pollution control engineering design. The company has a 600-m� scienc building, and the most modern instruments and equipment. Sales are carried out nation-wide, and direct.

	97	(%)	98	(%)	99	(%)
Sales Volume ($ million)	4.5	10	5	10	6	16

Market Outlook:
The industry is not bad in China now, though there are too many companies in the market. However, many of these are too small and offer no high technology or competitive advantage, and they will not survive. Large companies that can deliver scale have the largest advantage in this market.

Projects Completed:
Project Name Slaughterhouse ww system
Industry Food industry
Location In Guangzhou
Foreign Partner None
Date Completed In 1999

Experience Working with Foreign Companies: The company has worked with French and Japanese companies (such as Kawamoto), both as a project partner in projects and to possibly form a cooperative company.

Areas of Cooperative Interest: They would like the opportunity for further cooperation with foreign companies, in whatever way works best, and believe that their expertise and local knowledge would be of great benefit to the foreign company.

Credit Reference Information: (as available)

Bureau of Industry & Commerce Registration Number
Because it is national facility belonging to Environmental Protection Bureau, it has no BICR Number.

Co. Name: Beijing Shunyi Water Treatment Equipment Factory
Telephone No. 8610-69411380, 69412349
Address: Zhongshan Town, Shunyi, Beijing
Fax Number: 8610-69412726
Number of Sales Staff: 400
Number of Technical Staff: 17
President: General Manager: Mr. Zhang Guo-ming
Ownership (type): Private
Owners: Zhang and others
Year Established: In 1986
Products/Services:
Products:
RO Desalination Systems
HR heat exchanger
Haixing high-speed filter
Services:
Sales, technology development, engineering design, engineering construction, environment protection consulting, resources comprehensive utilization

Company Description:
This is a private company with a nationwide network of affiliates. They have a 50,000 sq m factory and operate throughout China. In particular, they target their systems to municipal end-users as well as the paper, food, and chemicals industries. Affiliates include Dongguan, Sida, and Sitong companies.

	97	(%)	98	(%)	99	(%)
Sales Volume ($ million)	N/A	N/a	5.5	N/a	5.8	4

Market Outlook:
For water treatment technology, domestic technology and foreign technology are almost on the same level. The main difference lies in the ability to treat large volumes. As the technologies are similar, the competition is very strong. It is best not to concentrate on new products, but on existing technologies, with which end-users are familiar.

Projects Completed:
Project Name Sichuan Yibin Municipal Party Committee—WT engineering
Treatment ability: 150 tons / hour
Industry Municipal/government
Location Yibin, Sichuan Province
Foreign Partner Tone WT Co. of Japan
Date Completed Late 1999

Experience Working with Foreign Companies:
They had a JV with a Japanese company, but this was not too successful because there were too many disputes on how to divide projects. At present the company has two joint ventures, one with a Hong Kong company and the other with an American one. The latter JV has problems in capitalization and marketing.

Areas of Cooperative Interest:
They are really most interested in a foreign company that can bring strong water treatment systems technology, particularly to work on larger facilities. No prior Chinese experience is necessary.

Credit Reference Information: (as available)

Bureau of Industry & Commerce Registration Number: (as available)

Co. Name : Dalian Beida Water Purification Equipment Co
Telephone No. 86411-4085031
Address: 79 Lingbing Road, Gangjingzi, Dalian.
Fax Number: 86411-4693794
Number of Sales Staff: 50
Number of Technical Staff: 14
President: GM: Mr. Wang Sheng
Ownership (type): JV
Owners: Dalian People’s Government and German Co.
Year Established: In 1995
Products/Services:
Products:
FIS-ultraviolet equipment
Ozonation equipment
Services:
Engineering, design, consulting, testing

Company Description:
The company specializes in disinfection and specialty equipment and engineering services for the water and wastewater treatment industry. Most of its technology is foreign. In particular, they target the food, chemicals, husbandry, and municipal markets. The company operates throughout China and sells directly.

	97	(%)	98	(%)	99	(%)
Sales Volume ($ million)	0.6	10	0.6	0	0.8	25

Market Outlook:
The environmental industry in China does not have a long history, and the number of people who really know how to do things right is small. Most companies are small, so if one can choose the right niches then it is not hard to find success. It is important to have products and service that distinguish one from other companies.

Projects Completed:
Project Name a. Yangzhou water supply engineering Co.—disinfection
b. Changzhou energy engineering Co.—disinfection
Industry a. Municipal
b. Energy
Location a. Yangzhou, Jiangsu
b. Changzhou Jiangsu
Foreign Partner None (for this project)
Date Completed Both in 1998, 1999

Experience Working with Foreign Companies:
Aside from the present JV, they have worked with other companies on a project basis. They also, for example, import various equipment for sales in China. Cooperation helps it to explore the international market. The company is exploring the possibility of selling its engineering services in Germany.

Areas of Cooperative Interest:
As they have benefited greatly from foreign cooperation, they are very interested in further cooperation. It should not be with a direct competitor of their current JV partner, but are open to other areas.

Credit Reference Information: (as available)

Bureau of Industry & Commerce Registration Number: (as available)

Co. Name: Jihua Group Environmental Protection Industry Co., Ltd.
Telephone No. 86432-3990051, 3990052
Address: 27 Zunyi East Road, Longtan District, Jilin
Fax Number: 86432-3037738
Number of Sales Staff: 3,277
Number of Technical Staff: 1,823
President: General manager: Mr. Li Zhi-ming
Ownership (type) SOE
Owners: Jilin People’s Government
Year Established: In 1998
Products/Services:
Products:
Wastewater treatment equipment
Solid waste treatment equipment
Solid and liquid separating centrifuges
Indoor air treatment equipment
Services:
A full line of water and wastewater solutions, recycling “three-in-one-waste” resources, and consulting

Company Description:
This is a large company that has over 340 product lines, mostly in the area of water and wastewater treatment. The company has strong relationships with end-users, government in particular, throughout China, and sells direct. Target end-users include municipal, petroleum, chemicals, food processing, and pharmaceuticals.

	97	(%)	98	(%)	99	(%)
Sales Volume ($ million)	3	6.	3.2	6	3.4	6

Market Outlook:
The water and wastewater treatment industries are more mature than other environmental industries in China, though remain a larger market than air treatment or remediation. There have not been very large changes in this industry in the past 3 or so years, and no fall in demand, though the competition now is quite tough. One has to have good connections in this industry to compete.

Projects Completed:
Project Name a. Shaoxing dying waste-water treatment engineering – 300,000 m� per day
b. Changchun Dacheng Corn Co.— 75000,000 tons m� per day
Industry a. Dying industry
b. Agriculture
Location a. In Shaoxing, Zhejiang Province
b. In Changchun, Jilin Province
Foreign Partner a. None
b. A Taiwanese Company
Date Completed a. in 1999
b. in 1999

Experience Working with Foreign Companies:
Their experience with foreign companies has been mixed. They nearly established a JV with a French company, but this fell through. Cooperation with Hong Kong and Taiwanese has been hit and miss.

Areas of Cooperative Interest:
As they are a large company, with well-developed product lines, they are not looking for foreign companies that make the same products, but one that makes specialty products of high technology in this industry. Water or wastewater is best. If so, they would like to cooperate.

Credit Reference Information: (as available)

Bureau of Industry & Commerce Registration Number: (as available)

Co. Name: Shangdong Huate Co.
Telephone No. 86531-2958524
Address: Science Garden, Shandong Industry University, Qian Foshan Road, Jinan, Shandong
Fax Number: 86531-2958534
Number of Sales Staff: 51
Number of Technical Staff: 17
President: General Manager: Mr. Liu Qingmin
Ownership (type): Government
Owners Shandong Industry University
Year Established : In 1993
Products/Services:
Products:
Huate908— CLO2 disinfecting gas generator.
Huate908— stable CLO2 generator
Patents used in these two products: ZL93111202.8 and ZL991120.03.X, ZL99112022.1
Services:
Production, sales, environmental protection technology development, environment engineering design, environment engineering construction and environmental protection consulting service

Company Description:
This is a medium-size environmental company, which relies a great deal on distributors for product sales. It has 158 distributors throughout China, and a client base of 2000. The company also exports products to SE Asia, and has a group of affiliates throughout China, as well as relationships with key research institutes throughout the country.

	97	(%)	98	(%)	99	(%)
Sales Volume ($ million)	N/a	N/a	1.4	5	1.6	12.5.

Market Outlook:
There are too many copy-cats in this market, and these companies are growing fast. This creates a bad atmosphere in the market, as sometimes end-users cannot tell who is for real and who is not. No great changes are expected in the near future.

Projects Completed:
Most Recent Second Third
Project Name a. Baoding Lekai film factory- Huate908— CLO2 generator.
b. Beijing University CLO2 generator.
Industry a. Film industry
b. Education industry
Location a. Baoding. Hebei
b. Beijing
Foreign Partner None (for these projects)
Date Completed a. in 1998
b. in 1998

Experience Working with Foreign Companies:
It was worked with foreign companies on a project basis before, and is now under negotiations for a JV with a European company.

Areas of Cooperative Interest:
Until these negotiations are settled, it does not want to begin dialogue with another company, but otherwise would like to cooperate with a strong foreign company.

Credit Reference Information: (as available)

Bureau of Industry & Commerce Registration Number: (as available)

Industry Zones

The following is a profile of 6 industrial zones in China. Four of these emphasize the environmental industry, and two do not. For further analysis of industrial zones, please see Chapter 2. Also please note that the tax benefit policies of many of these zones can be very detailed, and many are only summarized here. If a company is interested in one of these zones, it is best to contact the zone, MoFTEC, or the US DoC for full information. Also note that advantages and drawbacks and other opinions are according to the particular zone, not the authors of this report.

Zone Name: Jiangsu Yixing Environmental Protection Industrial Zone
Telephone No.: 86510-7061840

Fax Number: 86510-7061315

General Location: West of Shanghai in Jiangsu Province; near Xingchang Railway Station
Year Established: 1992
Zone Characteristics: The only dedicated environmental zone in China; about half the companies are in the zone are environmental
Owner/sponsor: Yixing Government
General Manager: Mr. Mo
Total Area: More than 20 sq.km
Companies in Zone: 280 (59 foreign)
Examples:
1) Japan Baishide Jiangsu Co., Ltd.(blowers)
2) Finland Kai Mi Ou Te Medicament Co., Ltd. (medical waste treatment equip.)

Size of Average Plot: About 0.25 sq.km

Infrastructure:
Port: Inland 6-grade river-route is fit for 300~500-ton ships. It leads to Suzhou, Zhangjiagang, Wuxi and Changzhou.
Transportation: It is 60 km from Wuxi, 60 from Changzhou, 200 from Shanghai, 170 from Nanjing and 170 from Hangzhou. The Yixing and Ninghang highway is being built now and will be finished in 2 years.
Utilities: Lianyun Harbor’s nuclear power plant and the Three Gorges power plant’s transformer-substations are both in Yixing.

Services Offered: Registration procedure, rent workshop and staff accommodation
Tax Benefits: Foreign companies pay no taxes in the first three years after profitability, and in the fourth and fifth years pay half taxes.

Pricing (example): For industrial enterprises, RMB 60,000 ($7,200)/667 sq.m

Main Advantages: The conditions are good, and companies can network and get business from other environmental companies in the zone.
Drawbacks: Harbor and highway facilities still need development
(note: advantages and drawbacks are in the opinion of the industrial zone)

Other Comments: They are still looking for foreign high-tech companies, environmental or not. They claim to have one-fourth of the environmental market (not companies) in China represented in their zone.

Zone Name: Jinan New High-technology Industry Development Zone
Telephone No.: 86531-8904647
General Location: East of downtown Jinan, Shandong Province
Year Established: 1991
Zone Characteristics: Accept all types of companies. Have an emphasis in several industries, including IT and environmental, the latter of which they will put more emphasis on.
Owner/sponsor: State Science & Technology Committee (state-run; national government)
General Manager: Mr. Peng Yuan-dong (president)
Total Area: 15.9 sq. km
Companies in Zone: More than 3000 (about 100 foreign)
Examples: -China Light Motorcycle Group.
-Taiwan Hanhua Co. (water treatment).

Size of Average Plot: about 2000sq. m

Infrastructure:
Port: The nearest harbor is Qingdao Harbor, and it takes about 3 hours to reach there.
Transportation: It is 4 km away from Ji-qing highway, 10 km away from Jinan Railway Station, and 15 km away from Jinan International Airport.
Utilities: There is a transformer substation of 22,000 KV, and two of 110,000 KV. Water supply can reach 150,000 tons/day.

Services Offered: The zone encourages companies to contact the zone for this information, which according to them is considerable.
Tax Benefits: For exported products of foreign capital enterprises, value-added tax and excise is free. They offer protective tariffs for imported material, spare parts, parts, devices and such for export contract. The enterprise income tax rate paid by productive foreign capital enterprises will be 24%.

Pricing (example): $.10/sq. m per day per rent, $277/sq. m for requisition

Main Advantages: There is an excellent local labour pool of talented potential workers. There are 11 universities; for example, Shandong University, and Shandong Training School, 53 research institutes, and 3 state-grade labs. Also, it is a nationally sponsored zone, with a temperate climate.
Drawbacks: No comment.

Other Comments: There is no special incentive for environmental companies, but they are certainly welcome. Also, there is an association of foreign investors. They also publish a journal to offer information including exchange of policy, technology information, and project information, etc.

Zone Name: Qinhuangdao Economic & Technological Development Zone
Telephone No.: 86335-8051739
Fax Number: 86335-8051519
General Location: Qinhuangdao
Year Established: 1985
Zone Characteristics: It was initially formed for the metals, machinery, electronics, light textile, refined chemical industries, and later added other industries such as environmental.
Owner/sponsor: Hebei People’s Government
General Manager: Mr. Hu Ying-jie.
Total Area: The planned area is 10 square km. Approximately 5 square km have been developed.
Companies in Zone: 1,482 (351 foreign)
Examples: LG International Group, Korea
Fujitsu Corp, Japan

Size of Average Plot: About 350sq. m.

Infrastructure:
Port: It is 1.5 km away from the Port of Qinhuangdao.
Transportation: Three major railroads: Beijing-Harbin, Beijing-Qinhuangdao, and Datong-Qinhuangdao converge here. It takes approximately two hours from Beijing to Qinhuangdao by express train. There are also two state highways that run through it.
Utilities: Electricity for power equipment and lighting is supplied to consumers in the zone at voltage of 10 kV or less. For heat supply parameters, saturated industrial steam at pressure below 0.8 Mpa is supplied. The aggregate capacity of the local call switchboard is 20,000.

Services Offered: They have independent right of examination of approval and associated service organizations, such as Bureau of Commerce and Industry, Tax Bureau, Municipal Planning and Administrative Bureau, SEPA, Labor and Personnel Bureau etc.

Tax Benefits: For enterprise income tax, productive enterprises with foreign investment in this zone are levied an income tax rate of 15%. Enterprises scheduled to operate for a period of ten years or more are exempt from enterprise income tax for two years commencing from the first profit-making year and allowed a 50% reduction from the third to the fifth year inclusive. Joint ventures scheduled to operate for a period of more than 15 years are exempt from the enterprise income tax commencing from the first profit-making year to the fifth year and allowed a 50% reduction from the sixth to the tenth year inclusive.

Pricing (example): A very detailed system. Please contact zone for specifications.

Main Advantages: There is a mild climate, traffic is convenient, and the area is a strong industrial base. In addition, there are many financial benefits.
Drawbacks: No comment.

Comments: There are not many privileges for environmental companies now, but there may be opportunities for environmental project work for companies within the zone.

Zone Name: Tangshan New High Technology, Economic and Technology Exploitation Zone
Telephone No.: 86315-3271-955
Fax Number: 86351-3272-414
General Location: On the northern outskirts of Tangshan City, Hebei Province
Year Established: 1993
Zone Characteristics: Emphasis on electronics, information technology, material science industries, life sciences, environmental and agriculture industries.
Owner/sponsor: Tangshan People’s Government
General Manager: Mr. Zhou Xiao-cheng
Total Area: 10sq. km. Now 2.79sq.km have been developed. There are 27 large plots, each divided into 104 sub-plots
Companies in Zone: 500 (40 foreign)
Examples:
Tangshan Panasonic Industry Machine Co., Ltd.(China and Japan JV)
It makes welding machines
Tangshan Environmental Protection Instrument Engineering Co., Ltd. (currently looking for foreign partners)

Size of Average Plot: About 13 thousand sq. m

Infrastructure:
Port: As an inshore city, it is 50~60 km from Jingtang Harbor, 80~90 km from Qinghuangdao Harbor, and 60 km from Tianjin Harbor which is the biggest of the three.
Transportation: It is 180 km far from Beijing Capital Airport, 120 km far from Tianjin Airport, and 130 far from Qianghuangdao Airport. And it is connected with them by highway. There are railways leading to Beijing, Tianjin, and Qinghuangdao.
Utilities: There are 23 power plants in Tangshan-12 billion KWh per year.

Services Offered: They have a bureau of economic development to assist both the technology and products of zone enterprises. There is facilitated access to various government bureaus and ministries, and career service center, etc. There is also assistance in registration.
Tax Benefits: From the first year of profitability, the first two years are tax-free, and in the next three years the taxes are half-rate. At the same time, if the business term is over 10 years, the Finance Depart will return one half of 5 years’ tax from the sixth year. Contact the zone for details.

Pricing (example): For requisition, the price is 150,000 RMB ($18,000) per 667sq. m.

Main Advantages: It is conveniently located between Beijing and Tianjin, is part of the Tangshan “Master Plan,” has superior services, a strong labour pool, and many strong companies.
Drawbacks: None

Comments: They believe that service is what sets them apart.

Zone Name: Kangqiao Industrial Zone
Telephone No. : 8621-5812-1822
Fax Number: 8621-5812-1822
General Location: 2502 Hunan Road, Pudong new district, Shanghai; 8 km SE of the Nanpu Bridge
Year Established: 1992
Zone Characteristics: Inclusive of all industries (no particular emphasis on environmental)
Owner/sponsor: Nanhui People’s Government
General Manager: Mr. Xu Jiang
Total Area: 26.88 sq. km.(8 of these have been developed)
Companies in Zone: More than 500 (144 are foreign)
Examples:
Deerfu Co. (Shanghai and US) (motor storage batteries).
Shanghai Yanfeng Jiangsen Co., Ltd. (motorized chairs).

Size of Average Plot: About 15,000 sq.m

Infrastructure:
Port: It is 35-40 km from Waigaoqiao container port
Transportation: Access to all of Shanghai’s and Pudong’s highways, rail links, airports
Supply: One 200,000 watt electric-supply center and three 35,000 watt electric-supply centers. Water-supply is 120,000 tons every day, and there are 100,000 program control telephones. Natural gas is also offered. .

Services Offered: They help WOFEs to apply for registration. They also offer commercial and industrial registration, taxation affair registration, and customs assistance.

Tax Benefits : Export: customs duty is free. Import: value-added tax is free. Other benefits are also included.

Pricing (example): For requisition: $50/sq. m (industry), $80~90/sq. m (real estate). For rent: $5/sq. m one year (land).

Main Advantages: It has all the advantages of Pudong with the favorable benefits of Nanhui administration. The zone is newer than other zones, and rents are very competitive.
Drawbacks: It is a district-grade zone

Relevance to Environmental Industry: They have an association of foreign capital investors, and members are given preferential information. Furthermore, they have a good relationship with the local SEPA.

Zone Name: Caohejing New Technology Exploitation Zone
Telephone No.: 8621-6485-5800

Fax Number: 8621-6485-1906
General Location: 509 Caobao Road, Shanghai, in Southwest Shanghai (Xuhui District)
Year Established: 1988
Zone Characteristics: N/a
Owner/sponsor: Shanghai Economy Development Committee
General Manager: Mr. Wang
Total Area: 6 sq.km.(5 km developed- no plots)
Companies in Zone: 700 (270 foreign)
Examples:
General Signal (mixers)
WL Gore (APC equipment)

Size of Average Plot: 8,500 sq m

Infrastructure:
Port: The nearest harbor is Wusongkou
Transportation: It is very near Jinqiao Airport, the subway, and all Shanghai highways.
Utilities: They belong to East China Power Net, and have all relevant utilities

Services Offered: They supply assistance in commodity inspection, customs, taxation affairs, and commercial and industrial registration, etc.

Tax Benefits: For example, for income, the tax rate is 15%, and on this base, the first two years’ tax is free from the first year of profitability, and the next three years are charged at half rate.

Pricing (example): For requisition, the price is $150/sq.m. For rent, the price one day is $4/sq.m

Main Advantages: The zone is very central and convenient, there are many strong, high-tech companies, and the labour pool is very strong.
Drawbacks: They are not one of the cheaper zones

Comments: They are looking for high tech companies. There is a member association, with preferential information. They encourage environmental companies to invest in their zone, but have no special privileges for them.

Industrial Organizations

The following is a profile of three environmental organizations in China. US companies may contact them for information or in some cases for assistance.

Organization Name: Center for Environmental Sound Technology Transfer
Telephone No.: 8610-8263-6607
Address: 109 Wanquanhe Road, Haidian District, Beijing
Year Established: 1997
Owner/sponsor: It is a non-profit agency established by the State Ministry of Science & Technology in cooperation with the Asia Development Bank
Executive: Mr. Shi Han
Nature of Organization: Emphasis on cooperation and technology
Purpose:
Hold international information exchanges of sound environmental technology.
Assess and introduce advanced technology.
Make the center a window for the world to know about sound environmental technology.
Promote the process of environmental technology transfer
Staff: 10
Members: Not a membership organization
Affiliations:
State Ministry of Science and Technology.
MoFTEC
Promotional Center of Shanghai Green Industry Technology
Yixing Environmental Protection Science and Technology Industry Zone
Other domestic and overseas agencies

Services/Activities:
Information and coordination
Coordinate and publish information on sound environmental technology transfer, technology assessments and financing.
Research and propose regulations for sound environmental technology transfer.
Hold trainings
Publish several journals in this area

How can be of use (to US environmental Companies): They can be contacted to assist in cooperation with enterprises in China on environmental technology, small to medium size companies in particular. And for a source of information on China environmental technology.

Plans:
They are planning to build environmental technology service centers across the country, with the help of State Ministry of Science & Technology and Asia Development Bank. The target is to build five centers: in Shanghai, Wuhan, Guangzhou, Shenyang, Chengdu, and Xi’an.

Organization Name: China Environmental Protection Industry Association
Telephone No.: 8610-6839-3900
Address: 9 Sanlihe Road, Haidian District, Beijing.
Year Established: 1993
Owner/sponsor: State Bureau of Environmental Protection.
Executive: Mr. Qu Ge-ping (chairman)
Nature of Organization: A trade association
Purpose:
To promote the development of the environmental protection industry.
Staff: 20
Members: Over 300
Affiliations:
State Environmental Protection Agency

Services/Activities:
Advise the government regarding the environmental protection industry. This includes proposing regulations.
Organize technical exchange activities, consulting service activities, and the introduction of new technology.
Collect information on the industry, which is dispersed to members
Help enterprises to introduce foreign capital, technology, and equipment.
Publish China Environmental Protection Industry News Report and China Environmental Protection Industry Journal

How can be of use (to US environmental Companies): If they want to pass technology authentication in China, they are recommended (by the organization) to contact them.

Plans:
No comment.

Organization Name: China Environment and Science Association
Telephone No.: 8610-66160015

Address: 115 Nan Xiao Jie, Xi Zhi Men Nei, Beijing

Year Established: 1979
Owner/sponsor: It is a non-governmental and non profit. It is a member of China Science and Technology Association, and nominally under SEPA
Nature of Organization: Heavy emphasis on science

Executive: Mr. Xie Zheng-hua (director), Mr. Bao Qiang (secretary general)

Purpose:
Promote environmental science and serve society

Staff: 20
Members: 35,000
Affiliations:
China Science and Technology Association
China Bureau of Environmental Protection

Services/Activities:
Organize academic and information symposiums on major problems of this industry to promote the development of environmental protection technology.
Organize scholars and scientists to make research for improving the industry
Offer decision-making consulting and information service to government and other groups on environmental development, as well as strategic, macroeconomic and science-technology policies.
Spread environmental knowledge and advanced environmental technology, especially to youth.
Publish academic journals on environmental science and technology
Develop relationships with overseas parties for environmental science and technology.
Recognize people who are helping to advance this field.

How can be of use (to US environmental Companies):. They can contact this organization to promote their products or to search for a partner in the industry.

Plans:
Keep growing and offer more services.

Contact List

Companies

The following is a list of foreign companies active in the China environmental market, many of whom where contacted for this study. Unless noted, all addresses are in China. The country code for China is 86.

ABB China Investment
South Tower, Rainbow Plaza
14 E. Third Ring Rd. North, Beijing, 100026
Tel: 8610-6595-6688
Fax: 8610-6500-3117
Mr. Paul Chan

ALB Klein
Rm.415, Chang Ning Keji Building
201-209 Tianshan Zhi Rd., Shanghai 200051
Tel: 8621-6259-6927
Fax: 8621-6228-9845
Mr. Kurt Papst
Chief Rep.

Alfa-Laval
Room 718, Electric Power Building
430 Xujiahui Road, Shanghai 200047
Tel: 8621-6472-7370
Fax: 6472-8395
Mr. Peter Huang
General Manager

AquaGuard Spill Response
#203-1305 Welch Street
North Vancouver, British Columbia
CANADA V7P 1B3
Tel: 604-980-4899
Fax: 604-980-9560
Mr. Nigel Bennett
Executive Vice President

Baker Hughes/EIMCO
Suite 1001, Consultec Building
B-12 Guang Hua Road, Jian Guo Men Wai
Beijing 100020
Tel: 8610-6505-2501
Fax: 8610-6505-2833
Mr. Jia Sen
Chief Rep.

BHA New Environmental Technology
First Floor SMEC Building,
118 Fute Road N.Waigaoqiao FTZ, Shanghai 200131
Tel: 8621-6357-7100
Fax: 8621-6357-5727
Mr. Tony Liu
General Manager

Black & Veatch
Jing-Tai Mansion, 15th Floor, 01-02
No. 24 Jianguomenwai Ave., Beijing 100022
Tel: 8610-6515-9866/9955
Fax: 8610-6515-9119
Mr. Tom Guenther
General Manager/Chief Rep.

BOC Gases (China)
599 Audre Road, Jinqiao, Shanghai 201206
Tel: 8621-5899-0272
Fax: 8621-5899-0273
Ms. Caroline Liu
Business Development Manager

Camp, Dresser & McKee (CDM) International
Room 4307, 43rd Floor, Metroplaza Tower 1
223 Hing Fong Road, Kwai Fong, Hong Kong SAR
Tel: 852-2428-2332
Fax: 852-2424-911
Mr. Travis Chan
Chief Rep

CH2M Hill
510 Zhonghua Rd., Nanjing, 210006
Tel: 8625-221-2124

Degremont
Landmark Tower, Rm.2001 8 North Dongsanhuan Road,
Chaoyang Dist. Beijing 100004
Tel: 8610-65906047
Fax: 8610- 6590-0529
Mr.Bruno Nebout
Chief Rep.

Donaldson (Torit)
345 Shanxi S. Rd., Room 2112
Shanghai, 200020
Tel: 8621-6471-3122
Fax: 8621-6471-3103
Mr. Wang
Sales Engineer

Dow Filmtec (Dow Chemical)
Suite 1101, Shui On Plaza
333 Huai Hai Middle Road, Shanghai 200021
Tel: 8621-6336-6998
Fax: 8621-6336-7917
Mr. Steve Liang
Sales Manager

Earth Tech
Room 1919 Golden Land Building
No. 32 Liang Ma Bridge Road
ChaoYang District, Beijing, 100016
Tel: 8610-6464 6262
Fax: 8610-6464 6066

Environmental Resources Management (ERM) China
Suite 2401 Harbor Ring Plaza
18 Xizang Middle Rd., Shanghai 200001
Tel: 8621-5385-2341
Fax: 8621-6469-2185
Dr. Yong Wang, Managing Director

Fisher Rosemount
Room B, C, 25/F Tower East Hi-Tech King World
668 E Beijing Rd, Shanghai 200001
Tel: 8621-5308-7766
Fax: 8621-5308-8128
Mr. Jason Goh
Sales Director

Flottweg GmbH
5F, Suite C-1, Shanghai Industrial Investment Building,
18 CaoXi North Road, Shanghai 200030
Tel: 8621-6427-7347
Fax: 8621-6427-7350
Mr. Chengdong Wu
Chief Rep.

Fluke Corporation
Rm 2301, Scite Tower
22 Jianguomenwai Ave. Beijing 100004
Tel: 8610- 65123435
Fax: 8610-6512-3437
Mr. Jimmy Huang
Chief Rep.

Fluor Daniel
208 Man Po International Business Centre
660 Xinhua Road, Shanghai 200052
Tel: 8621-6282-3009
Fax: 8621-6282-5548
Mr. Peter Han
Business Development Manager

General Signal
1F, Bldg. 18, Caohejing Hi-Tech Park
485 Guiping Road, Shanghai 200233
Tel: 8621-6485-3018
Fax: 8621-6485-2438
Mr. Ben Lu
General Manager

ITT Corporation
Ro.512/ Block B, COFCO Plaza,
No.8 Jianguomennei Ave. Beijing 100005
Tel: 8610-6524-3165
Fax: 8610-6524-6952
Mr. Xiaochong Li
Manager

LMI (Milton Roy)
Rm. 2206, Hong Kong Plaza, South Building
No. 283 Huai Hai Zhong Road, Shanghai, 200021
Tel: 8621-5306-8635
Fax: 8621-5306-5733
Mr. Robert Chen

Monsanto
9/F, Novel Plaza
128 Nanjing West Road, Shanghai 200003
Tel: 8621-6350-9645
Fax: 8621-6350-9655
Mr. James Zhao
Manager, Environmental Chemicals

Montgomery Watson
Suite 1204 Harbour Ring Plaza
18 Xi Zang Zhong Road, Shanghai 200001
Tel:8621-5385-2280
Fax: 8621-5385-2278
Mr. Jian Wu

Nikuni Pumps
118 Chengheng Rd., Hengxing-Cun, Chenghang-Zhen
Minhang District, Shanghai, 201114
Tel: 8621-6429-2249
Fax: 8621-6429-1122

PACT Environmental Technology
Suite 9E Ai Bang Building
585 Lingling Rd., Shanghai 200030
Tel: 8621-6481-2155
Fax: 8621-6427-6210
Mr. George Hayek
Managing Director

Parker Hannifin Motion & Control
Rm. 1101 Peregrine Plaza
1325 Huahai Rd., Shanghai 200031
Tel: 8621-6445-9339
Fax: 8621-6445-9717
Mr. Michael Leung
Chief Rep.

Shanghai KAWAMOTO Environmental Protection Co.
758 Julu Rd., Shanghai 200040
Tel: 8621-6247-0213
Fax: 8621-6247-5174

Shanghai Bovis Thames Da-Chang Waterworks Co. Ltd
3338 Taihe Xilu, Baoshan Qu, Shanghai
Tel: 8621-5604-8800
Fax: 8621-5604-5128
Mr. Alan Wetton
Director

Sinosphere Corporation
Suite 1720 Sunflower Tower
37 Maizidian Street, Beijing 100026
Tel: 8610-8527 5700
Fax: 8610-8527 5701
Husayn A Anwar PhD
President

US Filter Water Technologies
Suite 1805 Harbor Ring Plaza
18 XiZang Middle Rd., Shanghai 200001
Tel: 8621-5385-2588
Fax: 8621-5385-3788
Mr. Jun Zheng
Chief Rep

WL Gore (Gore Filtration Products Shanghai)
Caohejing Plant, Building 23
481 Guiping Rd, Shanghai, 200233
Tel: 8621 6485-4990
Fax: 8621-6485-2185
Mr. Christopher Wingo
Sales & Marketing Leader, Far East

Government & Organizations

Government

The following is a list of mostly Chinese government and organization contacts that may be of use to US companies interested in this market.

National Level Contacts

Ministry of Construction
9 Sanlihe Road, Beijing 100835
Tel: 8610-6839 3030
Fax: 8610-6831 3669
Mr. Shen Jianguo, Deputy Director-General
Department of International Relations

Ministry of Construction
China Association of Environmental Protection Industry
Beijing 100835
Tel and Fax: 8610-6839-3748 (Office)
Mr. Luo Jibin, Vice President

Ministry of Chemicals Industry
Environment Protection Office
16, Building Block 4 Anhuili, Beijing 100723
Tel: 8610-6491-4455 /1016,1018
Fax: 8610-6491-5733
Mr. Liu Guohua, Engineer

Ministry of Science and Technology
15B Fuxing Road, Beijing 100862
Tel: 8610-6851 5544
Fax: 8610-6851 2594
Mr. Lu Xuedu, Officer
Environmental S & T Office

State Development Planning Commission
38 S Yuetan Street, Sanlihe, Beijing 100824
Tel: 8610-6850 2401
Fax: 8610-6850 2728
Mr. Li Bin, Deputy Director
American & Oceanian Office
Foreign Affairs Department

State Economic & Trade Commission
No.26 Xuanwumen Xidajie, 100053
Tel: 8610-6319 2298
Fax: 8610-6319 3616
Mr. He Binguang, Director
Environmental Industry Development Office
(The connection should be through the foreign affairs office, by tel: 6319 3571, fax: 6319 3625)

State Environmental Protection Administration
Bilateral Cooperation Office
No. 115, Xizhimennei Nanxiaojie, Beijing 100035
Tel: 8610-6615 1934
Fax: 8610-6615 1762
Mr. Zhang Shigang, Director
Department of International Cooperation Affairs

State Environmental Protection Agency
Foreign Economic Cooperation Office
115 Xizhimennei Nanxiaojie
Beijing 100012
Tel: 8610-6832-7851, 6832-9911 Ext 3564
Fax: 8610-6832-7851
Liu Chunyu, Deputy Director

State Environmental Protection Agency
Department of Pollution Control
115 Xizhimennei Nanxiaojie
Beijing 100012
Tel: 8610-6832-9911 Ext.3603
Fax: 8610-6832-7710
Yang Zuojing, Deputy Director

State Environmental Protection Agency
Department of International Cooperation
115, Xizhimennei Nanxiaojie
Beijing 100035
Tel: 8610-6832-0672, 6832-9911, Ext 3558
Fax: 8610-6832-8013
Zhang Chongxian, Division Chief, Senior Engineer

State Environmental Protection Agency
Bilateral Cooperation Solid Waste Management Division
115, Xizhimennei Nanxiaojie
Beijing 100035, China
Tel: 8610-6601-2117
Fax: 8610-6601-5637, 6601-5641
Ma Hongchang, Associate Researcher

State Science and Technology Commission
Division of Ecology and Environment
Department of Science and Technology for Social Development
15-B Fuxing Road, Beijing 100862
Tel: 8610-6851-4054, 6851-5544-1605, 1603
Fax: 8610-6851-2163
Lu Xuedu, Program Coordinator

Regional Contacts

Beijing Municipal Environmental Protection Bureau
World Bank Loan-Beijing Environmental
Project Office Administration Division
14, West Chegongzhuang Road, Beijing 100044
Tel: 8610-6842-2844
Fax: 8610- 6842-2833
Mr. Loll Renjun, Vice General Engineer, Senior Engineer

Beijing Municipal Environmental Protection Bureau
14, West Chegongzhuang Road
Beijing 100044
Tel: 8610-6842-8670, 6841-4466-256
Fax: 8610-6842-4576
Wang Changjing, Senior Engineer
Science and Technology Division

Changsha Environmental Protection Bureau
Tel: 86-731-412 9654
Fax: 86-731-411 9656
Mr. Nie Yuan, Director

Chengdu Environmental Protection Bureau
Tel: 86-28-663 1155
Fax: 86-28-663 0679
Mr. Tang Jingang, Vice Director
Wenjiang Environmental Protection Bureau
Mr. Sun Qiaocheng, Project Manager
Mr. Chen Faliang, Director, Chengdu Environmental Research Institute

Chongqing Environmental Protection Bureau
Tel: 86-23-6387 6166
Fax: 86-23-6387 6166 / 6385 0021
Mr. Tu Hongbin
International Cooperation Office

Guangzhou Environmental Protection Bureau
Tel: 86-20-8312-5089
Fax: 86-20-8334-3709
Mr. Jiang Chong Zhou, Director General

Henan Environmental Protection Bureau
Tel: 86-371-632 8693 / 632 2855
Fax: 86-371-6320 0521
Mr. Guo Ruimin, Vice Director

Jinan Environmental Protection Bureau
Tel: 86- 531-692 8165 / 692 8158
Fax: 86-531-692 8163
Mr. Cao Xinsong, Deputy Director

Shandong Environmental Protection Bureau
Tel: 86-531-692 5081
Fax: 86-531-692 1389
Mr. Dai Dianshen, Vice Director

Shanghai EPB Division Chief of International Cooperation Office,
103 Cao Jia Yan Road, Shanghai 200050
Tel: 8621-6226-2351
Fax: 8621-6211-7850
Mr. Wu Chengjian

Shanghai Suzhou Creek Rehabilitation Construction Company
1019 Li Yuan Road, Shanghai 200023
Tel: 8621-6304-1780
Fax: 8621-6301-7576
Mr. Cao Long Jin, President and General Manager
Mr. Wang Ke, The Vice General Manager

Shenzhen Environmental Protection Bureau
Tel: 86-755-379-7292
Fax: 86-755-379-7271
Mr. Zeng Chun, Director General

Tianjin Municipal Environmental Protection Bureau
Tel: 86-22-2336 2558
Fax: 86-22-2336 6037
Mr. Yang Jienan, Vice Chief
The International Co-operation Department

Tianjin Municipal Construction Commission
Tel: 86-22-2330 3630
Fax: 86-22-2330 6419
Mr. Liu Zhentu, Director
World Bank Office

Tianjin Funds Management Office of Industrial Pollution Treatment
Tel: 86-22-2361 3412
Fax: 86-22-2336 2540
Mr. Li Xiaoning, Director

Wuhan Environmental Protection Bureau
Tel: 86-27- 8579 1383
Fax: 86-27-8575 8657
Mr. Huang Wei, Director of General Office

Zhengzhou Environmental Protection Bureau
Tel: 86-371-762 8108
Fax: 86-371-763 9852
The Office of Foreign Affairs

Zhuhai Environmental Protection Bureau
Tel: 86-756-221-8741
Mr. Wu Jin Tian, Director General

Chinese Organizations

Center for Environmental Sound Technology Transfer
109 Wanquanhe Road, Haidian District, Beijing
Tel: 8610-8263-6607
Fax: 8610-8263-6017
Mr. Peng Si Zheng

China Association of Machinery Industry for Environmental Protection
46 Sanlihe Road, Beijing 100823
Tel: 8610-6859 4942
Fax: 8610-6859 4846
Mr. Guo Baolin, Secretary General

China Environmental Protection Foundation
Department of Publicity
115, Nanxiaojie, Xizhimennei
Beijing 100035
Tel: 8610-6605-5635-15223, 6605-4338
Fax: 8610-6601-1186
Mr. Lu Jianxiu

China Environmental Protection Foundation
115 Nanxiaojie, Xizhimennei
Beijing 100035
Tel: 8610-6605-4338, 6601-1186
Fax: 8610-6601-1186
Mr. Zhou Zhizong
Foundation Office Director

China Environmental Protection Industry Association
9 Sanlihe Road, Haidian District, Beijing.
Tel/Fax: 8610-6839-3900
Mr. Yan, Ms. Luo, Mr. Wu Sanjiang

China Environment and Science Association
115 Nan Xiao Jie, Xi Zhi Men Nei, Beijing
Tel: 8610-6616-0015
Fax: 8610-6616-6602
Mr. Hou

Chinese Research Academy of Environmental Sciences,
Institute of Environmental Ecology
Beiuan Anwai, Beijing 10012
Tel: 8610-6423-2255-518
Fax: 8610-6423-1308
Dr. Cao Hongfa, Professor

Other Useful Contacts

WebPages

Accessing websites is a great way to learn more about this market without having to travel to China. The following is a list of such sites relevant to this market. Some of these sites are in Chinese only, though many have English versions.

US Government/Organization Sites

www.usembassy-china.gov/english/sandt/index.html.
www.usembassy-china.gov/english/chenvlnk.html
Both these sites are from the US embassy in Beijing, and contain China environmental information.

www.uschina.org
This is the website of the US/China business council.

www.usatrade.gov
As mentioned in Chapter 2, this is another US DoC site.

www.exim.gov.
The site of the US Ex-Im Bank

Chinese Government Sites

Department/Agency Website
State Environmental Protection Administration www.nepa.unep.net; www.sepaeic.gov.cn
China Clean Production Center www.chinacp.com
China Environmental Protection Industry Association www.cepi.com.cn
China Environmental Science Academy www.sepaeic.gov.cn/zhishudw/xuehui
Tsinghua University Environmental Engineering and Science Department www.env.tinghua.edu.cn
China Environmental Protection Industry Net www.cein.net
China Environment Online www.sepaeic.gov.cn

Industry Zone Sites

The following is a list of websites of China industry zones. Again, none of these are officially recommended.

Industry Zone Website
Anshan High-tech Industry Development Zone www.asht-zone.gov.cn
Baoding State High New Zone www.bd-ctp.net.cn
Beijing Economy and Technology Development Zone www.bda.gov.cn/index1.htm
Caohejing New Technology Exploitation Zone www.shtp.com.cn/cshtp.htm
Changsha State High-tech Industry Development Zone www.cshtz.com
Chengdu High-tech Industry Development Zone www.gxzs.gov.cn
Dalian Economy and Technology Development Zone www.ddz.gov.cn/head.htm1
Foshan High-tech Development Zone www.fset.gov.cn
Fujian Jiaomei Industrial Comprehensive Dev. Zone www.jiaomei.net
Guangdong Dongguang High-tech Industry Dev. Zone www.dg-sipa.gov.cn
Hangzhou State High-tech Industry Development Zone www.hhtz.com
Hefei Economy and Technology Development Zone www.sezo.gov.cn/hefei
Jiangsu Yixing Env. Protection Industrial Zone New address soon
Jinan New High-technology Industry Development Zone www.jctp.gov.cn
Kangqiao Industrial Zone www.invesment.gov.cn/kaifaqu/kangqiao
Qinhuangdao Economic & Technological Development Zone www.qetdz.com.cn
Tangshan Technology Exploitation Zone www.invest-to-tangshan.com.cn

Exhibitions

US companies that are interested in this market may consider attending an environmental exhibition in China. Two important exhibitions/conferences are listed here:

The 3rd International Conference & Exhibition on Environmental Protection, Recycling & Waste Disposal Technology and The 3rd China International Exhibition on Water Industry
Dates: 2000.11.28
City: Shanghai
Venue: Shanghai Exhibition Center
Contact Tel: 8621-6523-4065

China International Environmental Protection Exhibition ' 2001
Dates: 2000.06
City: Beijing
Venue: Beijing International Exhibition Center
Contact Tel: 8610-6839-3900

There are also exhibitions for products/services related to the environmental industry, such as instrumentation, infrastructure, and others. Check with the DoC or the relevant Chinese authorities for details.

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