Feature: China's war on pollution presents opportunities for western business
China’s increasing efforts to tackle pollution are about more than clearing the air – they point to a more developed nation and new opportunities for the west
In 2014, China’s Premier of the State Council, Li Keqiang, declared a “war on pollution”, citing the smog enveloping China as “nature’s red-light warning against inefficient and blind development”. He pledged to reduce steel and coal-based electricity production among other initiatives.
Since then, China has been making inroads into reversing the damage and is making moves into the wider world to gain technology and expertise in its battle with smog. This may not only present opportunities for China, but for western business too.
It has also made pledges progressing from vague goals to legislative targets, to try and curb pollution and move towards sustainability. According to David Wright, Director for China at Turquoise International, a UK-based investment bank, this is essential if China is to become the developed, globally-connected nation it wishes to be.
At the Communist Party Congress this October, president Jinping Xi pledged to open China’s doors wider and continue to battle climate change. Wright comments: “One of the things that Xi was saying was that China will continue to open up and connect to the world, and that’s all part of this strategy of how China can be developed and stable country.”
“When I left Beijing in 2014, the air was dangerous. It has moved from just being annoying to actually being dangerous and I think that’s the issue with water, soil and air in China. If they want long term stability and growth, this is a very key part of achieving that.” Wright feels China’s efforts to deal with pollution are “heavily linked with macroeconomic strategies and the development of China in general”.
However, this development is no mean feat. As industry booms, reductions in pollution levels waver. This year, China’s manufacturing industry reportedly grew at its fastest pace since 2012 – and this may have helped to scupper China’s hitherto progressive improvements in air quality.
Between January and July 2017, air quality worsened, with the 12 cities in Northern China reportedly seeing an 11.3% increase in PM2.5 and other harmful particles – the first rise since 2013. This resulted in a crackdown to meet 2017 targets, with some cities pledging to halt steel production for the winter months. The Ministry for Environmental Protection also launched a year-long special inspection.
One of China’s recently announced plans includes moving exclusively to ethanol-based gasoline by 2020 – which will not only tackle pollution problems in the world’s biggest car market but also use up stockpiles of corn – and ending the sale of petrol and diesel cars in favour of electric or hybrid equivalents, though the timetable for this remains to be finalised.
In addition, 2016 saw just 3mn tonnes of renewable fuel being used, and China will need to up this to meet targets – but it has pledged to produce biofuel “on a large scale” by 2025.
According to Wright: “A lot of this is coming right from the top, this is a strategic focus. As air pollution has got so bad, it’s become a real social issue – there’s a lot of potential for social unrest because of air and water pollution and problems with food, which has resulted in an increase in imported western food over the last few years.” Indeed, in 2014, agricultural pollution was named as a huge problem and 8mn acres of China were believed to be too polluted by heavy metals to grow crops.
China is investing on a national and provincial level in new technologies to solve the crisis. Wright says: “There’s a few big environmental tech conferences put on mainly by local governments in China, for example, the Yancheng local government has really been pushing environmental tech and wants to be known as a hub of excellence, so they’ve got a lot of universities to conduct their environmental technology research there… the local government gives incentives like free rent and various grants.”
The government has also used technology to allow its citizens to keep tabs on pollution, building a network of monitors to track PM2.5 with data made available publicly to smartphone users who can track local air quality, with the option to report breaches in pollution levels.
An International Affair
Indeed, China’s efforts heavily involve opening up to other nations, another important point discussed at the congress. “Xi mentioned China is going to focus on an equal deal for western companies as well as Chinese companies. In the last few years there’s been a real openness and desire, particularly by local governments in China, to support and bring in western business.”
In August, China’s Minister for Environmental Protection Li Ganjie called for closer cooperation between China, South Korea and Japan in the improvement of air quality. According to Xinhau, Li said that improving air quality was a priority of common concern for the three countries, and was the first area of cooperation under an action plan for the period from 2015-2019. He praised the previous work of the countries in tackling air pollution and sandstorms, and expressed hope that “the three sides would continue giving full play to their respective advantages, and share experiences on environmental protection on the basis of mutual respect and win-win cooperation”.
China has some big goals it cannot achieve alone. Wright comments: “In some ways, regulation is getting tighter in China in that what they need to achieve is further on than in Europe or North America. For example, China wants to be the leading electric car manufacturer in the world, so their market is ahead of Europe and North America as the government urges manufacturers to come up with solutions. In many ways, they are leapfrogging in terms of regulations and support. China is already asking more from their domestic regions than the west.”
Opportunities for the west
“If it’s done right there’s a real opportunity for western businesses entering or growing in China… it can be harder, but there seems to be an increasing amount of support from the Chinese government for western businesses in China,” continues Wright.
As for the UK companies Turquoise deals with, “there are a lot of UK acquisitions going on, but a lot of it is western companies pitching to the Chinese to see if they’re interested or not. There’s been a lot of hesitation or feeling that it’s a lot of hassle dealing with Chinese investors, because of the history where there’s been previous outbound investment from China, mainly from state-owned enterprises of high-level individuals. It hasn’t been particularly commercial.”
Now, however, things are changing. “The big move for outbound investment is that a lot of it is now coming from listed companies in China which are more commercial.
“Everyone at a big level and lots of companies at a smaller, venture capital, early stage level, are trying to get in – but at that level I think it’s harder to have the resources and spend the money that’s needed. Across the board, China is recognised because of the size of the market but also because the central government is really encouraging development.
“One of our portfolio companies, Bactest, a UK water tech company, has partnered with a Beijing sewage treatment utility to trial their technology, and they’re working on a few more links.
“We have just last month closed a deal where we helped a Chinese-listed company buy an aviation seating company in the UK – as far as we’re aware, this is one of the first deals that’s involved a western-based advisor with a Chinese-listed company on an outbound acquisition.”
China’s proactivity and willingness to reach beyond its borders will not only prove helpful in developing the nation, but lucrative for those western businesses willing to dive into the market: “There’s going to be an increasing amount of outbound investment which is really worth, from a UK perspective, finding out about and getting involved in.”
This article is available in December's edition of Business Review Asia
Why Alibaba Cloud is doubling down in Southeast Asia
Alibaba has announced expansion of its cloud business within Southeast Asia, with the introduction of a digital upskilling programme for locals alongside acceleration of its data centre openings.
This doubling down of its cloud business in Southeast Asia comes as the company faces stiff competition at home in China from rivals including Pinduoduo Inc and Tencent and seeks to up its game in a region considered to be the fastest-growing in cloud adoption to compete with leading global cloud providers AWS, Google and Microsoft.
Alibaba Cloud, the cloud computing arm of Chinese e-commerce giant Alibaba and second biggest revenue driver after its core e-commerce business, finally turned profitable for the first time in the December 2020 following 11 years of operation, thanks largely to the pandemic which has spurred businesses and consumers to get online.
Southeast Asia growing demand for cloud
In 2020, there was a noticeable increase in interest towards cloud in SE Asia, with the population embracing digital transformation during the pandemic and SMEs across the region showing increased demand for cloud computing.
Such demand has led to the expectation that Southeast Asia is now the fastest-growing adopter of cloud computing with the cloud market expected to reach US$40.32bn in Southeast Asia by 2025 according to IDC.
And there are plenty of players vying for a slice of the cloud pie. While AWS, the cloud arm of Amazon, is the leading player in Southeast Asia (and across all of APAC apart from China), Microsoft and Google are the next two most dominant players in Southeast Asia with Alibaba coming in fourth.
“There is no doubt that during the past year we have seen the acceleration of digital transformation efforts across all industries,” explains Ahmed Mazhari, President, Microsoft Asia. “Asia now accounts for 60% of the world’s growth and is leading the global recovery with the digitalization of business models and economies. Cloud will continue to be a core foundation empowering the realization of Asia’s ambitions, enabling co-innovation across industries, government and community, to drive inclusive societal progress.”
Alibaba’s commitment to Southeast Asia
At its annual Alibaba Cloud Summit, the Chinese company announced Project AsiaForward, an initiative designed to upskill local developers, small-to-medium-sized companies and connect businesses with venture capital. Alibaba said it would set aside US$1bn over the next three years to develop digital skills in the region, with the aim of helping to develop 100,000 developers and to help grow 100,000 tech startups.
But that’s not all. The company, which recently opened its third data centre in Indonesia, serving customers with offerings across database, security, network, machine learning and data analytics services, also announced it would unveil its first data centre in the Philippines by the end of 2021.
Furthermore, that it would establish its first international innovation centre, located in Malaysia, offering a one-stop shop platform for Malaysian SMEs, startups and developers to innovate in emerging technologies.
“We are seeing a strong demand for cloud-native technologies in emerging verticals across the region, from e-commerce and logistics platforms to FinTech and online entertainment. As the leading cloud service provider and trusted partner in APAC, we are committed to bettering the region’s cloud ecosystem and enhancing its digital infrastructure,” says Jeff Zhang, President, Alibaba Cloud Intelligence.
What other cloud providers are pledging in the region
This pledge by Alibaba to upskill both individuals and businesses follows Microsoft’s announcement in April that it was planning to upskill Malaysia’s population and would invest US$1bn over the next five years to build a new data centre centre in Malaysia.
This is the latest in a long line of pledges to the region by the US tech giant, which is fast accelerating the growth of its cloud datacenter footprint in Asia, expanding form seven 11 markets, and recently adding three new markets across Asia – Malaysia, Indonesia and Taiwan. Back in February, it announced plans to establish its first datacenter region in Indonesia and to skill an additional 3 million Indonesians to achieve its goal of empowering over 24 million Indonesians by the end of 2021.
And recent research by IDC shows that Microsoft’s most recent datacenter expansions in Malaysia, Indonesia and Taiwan alone are set to generate more than US$21bn in new revenues and will create 100,000 new jobs in the next four years.
Also last month, Tencent announced it has launched internet data centres in Bangkok, Hong Kong, Tokyo to add to its second availability zone opened in Korea last year and plans to add an internet data center in Indonesia, and Google has also been pushing into the enterprise space in Southeast Asia for several years now.
Expanding data centers allows cloud providers to boost their capacity in certain countries or regions.