China encourages more foreign investment in energy development


Emerging China, 25th January 2008

By Maggie Yun

January 25, 2008 -- China's Information Office of the State Council issued the country's first ever white paper on energy conditions and policies in late December, calling for an energy strategy centered on energy conservation, environmental protection, and increased international cooperation.

"We welcome more foreign investment in the energy sector," said Chinese Commerce Minister Bo Xilai at the first China International Coal and Energy New Industry Expo.

"Foreign companies that own clean coal technologies and work with their Chinese counterparts to tap China's coal reserves, one of the world's largest, may get good returns as China is seeking to reduce the greenhouse gas emissions and ease its increasing thirst for oil," Bo added.

Several major foreign companies, including Royal Dutch Shell Plc, South Africa-based Sasol Ltd., General Electric, ABB Group and Siemens AG, have already begun working with Chinese companies to produce electricity and substitutes for crude oil derivatives from coal, according to the Chinese Commerce Department.

"These big players are contributing to China's the transition from 'black energy' to 'green energy', and make healthy profits as a result," said Angang Hu, a professor of public policy and Management at Tsinghua University and director of the influential policy thinktank, the Center for China Studies.

Hu said that China's rise is a reality, but now a green development strategy is the only way forward. Hu believed it is imperative to make full use of both domestic and international energy, technology and markets by increasing the import of energy, especially clean energy, energy-efficient technology and environmental protection technology.

"As early as in 1994 and1995, external agencies began to take an interest in China's energy sector," Nengzi Shi, Deloitte vice president, said in a recent report. "They are especially keen on the investment in power plants, and foreign investors are now beginning to look into new sources of energy, including liquefied natural gas(, liquefied petroleum gas, and are seeking a number of substantive cooperation, including cross-border acquisitions."

So far foreign investors have set foot in the exploitation of coal, natural gas, hydropower, solar energy, wind energy, tidal wave energy and other new forms of energy.

Foreign-owned or Hong Kong-based gas companies such as Shell and Towngas have entered into China's city gas industry through joint ventures or mergers and acquisition.

Shell has found all its core businesses represented in China: exploration and production, gas and power, downstream -- including oil products and chemicals -- and renewable energy. On December 27, 2007, Shell China acquired a 55 percent equity interest in a coal bed methane venture in Shanxi province and will take over as operator.

"This is Shell's third upstream PSC [Petroleum Sharing Contract] venture in China. We are confident that our upstream technologies and expertise can help unlock the vast potential of coalbed methane in the country," Lim Haw-Kuang, Executive Chairman of Shell China said in a statement.

Shi added that the relaxation on energy policy can also mean more chances for China's second- and third-tier cities like Xinjiang and Chongqing, which are geographically more remote but rich in natural resources such as natural gas.

Renewable energy projects are particularly favored both by Chinese government and foreign investors.

Data from the China Energy Department shows that China abounds in solar energy in western provinces like Tibet, Yunan and Xinjiang -- but, at the same time, there are still nearly 60 million people without electricity. China accounts for only about 1 percent of the world's photovoltaic production capacity, which suggests that photovoltaic industrial development prospects are bright.

Trina Solar, a photovoltaic industry giant located in Changzhou, in Jiangsu province, is backed by a number of known investors such as Good Energies, Milestone Capital and Merrill Lynch. The solar industry has great potential and is growing fast in the Chinese market, according to Jifan Gao, CEO of Trina Solar.

"The Chinese government will improve the relevant policies and regulations for enterprises and the establishment of standardized investment projects, to stimulate the introduction of advanced technology," Xiaoxing Zhang, vice chairman of Changzhou International Investment Promotion Committee of Jiangsu, told Emerging China.

"Local governments will offer preferential taxation policies to wholly-foreign-owned companies involved in energy exploitation and production," Zhang added.

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