Investors who counted China down and out at the onset of the crash of 2008, ought to take a look at the Hang Seng Index, which has rallied around 35% since early March. As a long time China watcher, I think the comeback was to be expected.


So where will the next big growth sector be as China gets back on track?


News out of Hong Kong today that Entropy Ventures Ltd, a private equity fund that invests in green projects, expects a rebound in investment flows into Asia's clean energy sector in the second half following a dearth of deals since last year's credit crisis.


Sylvia Chan, managing director of Entropy, said optimism among private equity funds was underpinned by governments’ push for clean energy and efficiency programs.

China’s dramatic growth over the past 20 years has come at a huge cost, in terms of pollution. Areas such as Guangdong Province barely ever see the sun through the smog, groundwater is so badly polluted it’s undrinkable. The Chinese government wants that to change and have targeted stimulus initiatives to that end.


According to Chan, former head of utilities at Australian investment bank Macquarie Group, "The drivers at play are green jobs and green industries, and these are things that will support a three-year growth trajectory for the sector.”


Tight capital and slowing economies have hindered growth in the industry, trimming the size and number of deals clinched in the first half.

But that's about to change in the coming months, she said.


Most investors have taken a wait-and-see approach. But that's changing, and certainly investment flows will pick up in the second half, Chan said.


Entropy's $100 million fund, launched last year, has so far invested in Solar and Environmental Technologies Corp Ltd and Horizon Fuel Cells Technologies, both of which are based in China.


The fund aimed to invest in about 10 more companies by 20-11. About half of the fund would go to China projects, she said.


Hong Kong-based Entropy also planned to raise a second fund, Chan said, although she declined to give details.


For now, private equity funds remain cautious, avoiding capital-intensive sectors such as the once-hot makers of thin film used in solar energy panels.


According to Chan people are more interested in energy efficiency and storage because they are less capital-intensive and they are seeing governments, including the Americans, becoming more supportive of that.


Renewable energy, waste management, green batteries and smart grids are some of the other areas Entropy is eyeing. Smart grids promote the use of intelligent meters to monitor electricity use.


On Friday, Chinese Cleantech shares rose after China's Ministry of Finance announced measures to support cleantech and the environmental protection industries. On the list— ten areas to support, including windpower, solar photovoltaic generation and energy efficient cars.


Xinjiang Goldwind Science and Technology Co. which just won windpower contracts of 775.5 thousand KW, advanced 1.41 percent. Dongfang Electric Corporation Limited climbed 0.05 percent. Guangdong Baolihua New Energy Stock Co. added 3.97 percent.


Shenzhen Topraysolar Co. China's largest monocrystal line siliconproducer, rose 5.26 percent. Hubei Sanxia New Building Materials Co. which has the largest silicon deposits in south China, surged to the 10 percent trading cap. China Singyes Solar Technologies Holdings Limited surged 10.47 percent.


Battery and hybrid car developer BYD Company Limited climbed 3.85 percent. Warren Buffet invested in the company last year.


Tibet Mineral Development Co. which has the  world's third-largest deposit of lithium, for batteries, added 2.76 percent. China-Kinwa High Technology Co. which produces half of China’s copper foil used in lithium batteries, advanced 6.52 percent.


Jiangsu Guotai International Group Guomao Co. China’s largest producer of lithium battery electrolyte, climbed 0.34 percent.


There are two major stock exchanges in mainland China, Shanghai and Shenzhen. There are four basic types of shares: state shares, legal person shares, individual shares, and foreign capital/person shares.


Foreign capital shares include B shares and oversea-listed shares. B shares are publicly traded Chinese stocks in which foreign investors are permitted to invest. H shares refer to shares floated and listed on the Hong Kong Stock Exchange, N shares are issued as ADRs on U.S. stock exchanges; and L shares are issued on the London Stock Exchange.


Your financial advisor will have all the details.



While Cleantech globally will provide outstanding investment returns as world economies return to growth, Chinese cleantech deals look to be among the most exciting. A low cost structure, combined with powerful global and domestic demand, as well as the strength of Hong Kong Chinese financial backing and administrative facilities, the Chinese Cleantech sector could turn out to be one of the most exciting plays ever.


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Three angel investment groups have banded together to invest in early stage cleantech companies in response to what they call a “funding gap” in the sector.

CalCEF Clean Energy Angel Fund, Kuwait Petroleum Ventures Inc. and Keiretsu Forum’s Cleantech Investment Committee have formed a partnership called the Cleantech Angel Network of Networks.

According to a release from the three groups said the partnership will allow angel investors to collaborate and exchange information on potential investments and link early stage companies to early-stage investors.

Ultimately the partnership intends to fund a greater number of cleantech companies than if the three groups were working separately.

“As we were looking for opportunities to build out our cleantech strategy, we found partners such as Keiretsu Forum and CalCEF, who had also identified the need for more angel money and resources,” said Mohammad al-Ramadhan of Kuwait Petroleum Energy Ventures Inc. in the release. “In building this alliance, we will be able to leverage large pools of capital, operational expertise, seasoned professionals and multiple sources of deal flow to accelerate the growth of the cleantech industry.”

The Cleantech Group™, founders of the cleantech sector and providers of leading global market research and financial services for the cleantech ecosystem, along with Deloitte, which together with its affiliates provides audit, tax, consulting and financial advisory services to cleantech companies, today released preliminary 1Q09 results for clean technology venture investments in North America, Europe, China and India, totaling $1.0 billion across 82 companies.

The 1Q09 total is down 41 percent from the previous quarter, and down 48 percent from the same period a year ago. Cleantech venture investments have now declined for two consecutive quarters since peaking at $2.6 billion in 3Q08, representing the lowest level of venture capital investment in clean technology companies in two years. The average round size has contracted from $20 million in 3Q08 to $ 12.3 million in 1Q09.

“Cleantech financing is moving into a new phase, characterized by diversified funding sources, as the global recession and liquidity issues impact venture investors. Venture funds continue to invest significant sums, albeit at a slower pace and smaller scale than in the past two years,” said Brian Fan, Senior Director of Research, Cleantech Group.

Meanwhile, governments globally are allocating historic amounts of capital to clean technologies through stimulus packages, loan guarantees and tax incentives, which will enable the cleantech industry to continue to develop. A report titled ‘Towards a Global Green Recovery’ to be presented at the G20 Summit in London later this week estimates that almost $400 billion of some USD $2.6 trillion in economic stimulus allocations announced so far by G20 nations are earmarked for clean technologies such as renewable energy, improved electrical grids and cleaner cars.

Additionally...

 

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At the close of their summit meeting in London, the G-20 leaders committed to make available a $1.1 trillion program of support in addition to their national economic stimulus packages. While repairing the global financial system was the top priority, the closing communiqué stated  , "We agreed to make the best possible use of investment funded by fiscal stimulus programmes towards the goal of building a resilient, sustainable, and green recovery."

"We will make the transition towards clean, innovative, resource efficient, low carbon technologies and infrastructure. We encourage the MDBs [multilateral development banks] to contribute fully to the achievement of this objective," the communiqué added.

Also referenced was a reaffirmation of a commitment "to address the threat of irreversible climate change, based on the principle of common but differentiated responsibilities, and to reach agreement at the UN Climate Change conference in Copenhagen in December 2009."

Many observers took comfort in these statements. UN Secretary-General Ban Ki-moon said he was encouraged by recognition of the strong links between tackling the economic turmoil, food security and climate change. Yvo de Boer, the top United Nations climate official, noted "This is a good example of the major economies of the world coming together and developing a common understanding."

The absence of specific ’low carbon’ commitments in the summit communiqué does not mean the environment lost out in this round of talks, as some have suggested. In fact several initiatives were put in play to iron out environmental and climate change related proposals for the December Copenhagen conference, including another G-20 meeting in the fall. Until then, each G-20 member will pursue their own economic recovery programs, many of which contain measures targeting clean technologies and other projects with significant environmental impacts.

That being said, the question arises how green are these individual economic recovery packages. HSBC’s Global Research Division has published an informative report that answers that question directly. The Report, entitled A Climate for Recovery, examined more than 20 economic recovery plans and categorized the spending and tax-cutting measures according to the 18 investment themes in the HSBC Climate Change Index.

HSBC estimates that roughly 15% of the estimated $2.8 trillion of previously announced economic stimulus measures can be associated with investments consistent with stabilising and then cutting global emissions of greenhouse gases.

According to the report, on a percentage basis South Korea leads the group by allocating more than 80% of its fiscal stimulus spending to green initiatives.  But China tops the list in terms of the size of planned green spending ($200 billion). China has set aside 34% of its planned spending for eco-friendly projects. By contrast, India is investing nothing of its $13.7 billion stimulus plan for green ventures. Italy and Japan are the least green of the rich G7 countries, allocating just 1.3% and 2.6% respectively.

The United States and Canada rank 5th and 7th respectively on a percentage basis, though the estimated $94.1 billion allocated for green projects places the United States second behind China is total spending.

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