Increase in exports of environmental technology to China
– three case studies
China is currently undergoing a massive transformation. Strong economic growth, urbanisation and a generally more open attitude towards the rest of the world are a few of the factors that have created a totally new Chinese society over the last few decades. But development has not been as positive for the environment – an area where Chinese leaders now want to see some changes.
Efforts to make development in China more sustainable have given rise to great hopes for exports of Swedish environmental engineering. This is however no simple matter and for several reasons. Among other things, it is not fully evident how decisions are taken in Chinese society. The purpose of this report is to provide more knowledge of how environmental engineering projects are conducted in China as regards political context and models for funding and choice of technology. The intention is to contribute to Swedish players in both the public and the private sector being better able to navigate the Chinese market for environmental technology and how government initiatives and support can be designed to give the greatest benefit.
China's complex mesh of law, plans and politics
Decisions behind green projects in China are largely taken within a complex mesh of law, plans, economics, politics and the actions of various players. This does not set China apart from other countries but one insight in this report is that China in many ways is not one single country but many differences can be seen between provinces and cities.
China stands out as “different” in the political process from for example Sweden, which has influenced the theme of the present report. Some of these differences concern the communist party’s role in decision-making, which is naturally extremely central but at the same time is not open and moreover difficult to form a concrete picture of. Another aspect where China stands out is that the political sphere generally has greater influence than what we are used to. Yet another aspect is lack of trust on the part of society in general. Another difference is corruption, which is a constantly present factor that needs to be taken into account. A further circumstance that separates Chinese cities, in particular the smaller ones, from Swedish ones is that tax revenues are severely limited. Most revenues come instead from land sales.
In a Chinese city, the mayor plays the most important role in the initial phase of a project, although the responsible deputy mayor also has an important function. The short-term view that characterises local decision-making is primarily due to the fact that the term of office for city leaders is approximately five years and decisions therefore often cover that period in order to give a return (of various kinds). Where a strong local commission from the Ministry of Environmental Protection or the Ministry of Construction exists, they may act as drivers for new projects but often have only a more coordinating role. The experts at the mayor's disposal also play an important role by providing projects with conceptual inspiration. The role played at national level by the most influential ministry, National Development and Reform Commissions (NDRC), is a surprisingly small role politically. On the other hand, they have an important role in the long term since they are in charge of long-term planning of land use. They also have a role as an approving authority.
As regards choice of technology, a national regulatory framework exists in the form of standards, certification, and similar but here again five-year plans play an important role in that they set a level for the technology. In theory, it is the cities themselves that decide on the technology for a project. When for example a city intends to build a new district, it seems that a rough description of the technology content is already included in the documentation requirement in the procurement. In procurements of more specific, minor projects, for example waste water treatment plants, the project description contains specifications of certain choices of technology, or rather objectives.
The contractor is in reality the most important person as regards choice of technology. Not least since they provide most of the investment funding and in many cases will also operate the business etc after completion. One factor that sets China apart from Sweden is that major territorial projects are often divided up into sub-projects with different contractors.
The NDRC play only a minor role in choices of technology. Their role is rather an indirect one and concerns planning and approval of the projects: do they comply with national and local regulations? Indirectly, NDRC play a major role through the catalogues that they publish, together with other players, which specify which products, almost always Chinese, give the highest subsidies in public procurement.
Players who can play a role in choice of technology are the experts who participate in almost all projects. Among other things they specify needs that in practice necessitate a certain technology – which also means that they indirectly also designate specific companies to do the work.
The banks have only a minor direct role as regards choice of technology. On the other hand, as lenders they have a significant influence on for example the choice of contractor and subcontractors. It is evident that lending money for a project entails a demand that a certain company carry out the work. In China, banks often own construction companies or other companies involved in the construction process.
Considerations to increase exports of environmental technology
China is in general considered to be a relatively complicated country for Swedish SMEs to do business in. The political system's dominating role in creating business opportunities in China makes the central processes unpredictable and foreign players are often deliberately treated unfairly. The Swedish and Chinese players lack confidence each other and trust needs to be built over a long period, which requires both resources and patience. Technical competence is often relatively low and demand is primarily governed by price rather than quality requirements, which makes it difficult for Swedish solutions, which are often specialised and consequently expensive, to gain a footing.
Based on the total picture of these challenges and the information to be found in the three case studies described in the report, a number of conclusions can be drawn about how Swedish policy for increasing exports of environmental technology to China might be developed. Some of initiatives discussed below are already on-going in some form, but may need to be reviewed and/or scaled up. It is also important to point out that continuous follow-ups and evaluations of planned, on-going and completed initiatives are an absolute necessity for increasing efficiency and effectiveness in the long term.
Below follows a short summary
- Initiatives to strengthen Swedish companies at home, through training, counselling and capital, may play a vital role. A clearer focus on for example market adaptation and technology verification and on creating opportunities for broadened, scaled-up “Swedish” tenders, through consortia and collaborative projects of various kinds, would increase penetrative impact in China. A general concentration of resources, not only of the companies' resources but also all the public resources aimed at China, is probably a good strategy.
- Contacts at different levels, both geographical and hierarchical, in the political bureaucracy are crucial to success in China. One aspect of this is the importance of relations, as pointed out above, but education of the Swedish companies’ Chinese counterparts is also important. The level of knowledge is often relatively low and the Swedish companies are not always prepared to be able to answer the kind of questions that are asked, which we might feel is of peripheral importance but is a central issue for the Chinese. Public players in Sweden may possibly have a greater role to play in this respect. With a more systematic approach, Swedish experts in various fields could do more to contribute to a higher level of knowledge about Swedish technology in China.
In conclusion, it would also be interesting to know more about what other countries are doing in China. This concerns both benchmarking Swedish solutions against those of other countries more systematically and learning more about the scope and focus of various kinds of public support that other governments provide to their countries’ companies to increase exports of environmental technology to China. It is often argued that Sweden takes a conservative stance in relation to state subsidy rules compared to other European countries – whether this is true, and if so in what ways, needs to be investigated.
Increase in exports of environmental technology to China – three case studies
Serial number: WP/PM 2013:12
Reference number: 2012/112