A Strong Wind under the Sails of China’s Green Sector

With the new Foreign Investment Catalogue pushing several additional “green” industries into the “encouraged” category and the 12^th Five Year Plan declared the “greenest in history,” China is abuzz with talk about the “green” sector.

It has become very clear in recent years that the Chinese government is pushing “green” in its characteristic way: by throwing large quantities of money at the issue and by focusing on technology, green technology.  As much as green technology is a center of conversation, for the average China investor, defining the sector is slightly confusing.

To break this down a bit: green technology is an overarching category, largely the same as clean technology, and including any and all technologies that produce fewer emissions per unit produced.  Under this category is renewable energies (wind power, solar power, hydropower, biomass, biofuels, etc), which are energy sources that replenish themselves naturally, and sustainable technologies, which can be relied upon tomorrow no matter how much they are used today.  We use each of these terms throughout this magazine.

Energy – clean, green, new, renewable, sustainable, however you’d like to describe it – is at the core of the green technology discussion for two simple reasons: (1) astronomical demand juxtaposed against limited traditional resource supplies and (2) energy production emissions as a key environmental concern.

While China is often criticized for an uncompromising model of economic growth at the expense of the environment, it cannot be criticized for a lack of gusto for clean and green energy development.  China had the largest private investment in clean energy in the world in 2010, totaling US$54.4 billion, leaping ahead of the second place investment of US$41.2 billion in Germany and US$34 billion in the US.  Government-mandated minimum clean-energy targets are credited with allowing both China and Germany to move up the investment rankings.

Almost every article addressing China’s renewable energy sector mentions tax incentives as one of the key government methods to push forward sector development.  While new tax incentives applicable to the green sector are continuously emerging and many types of incentives can apply, three major groupings of note are those specifically mentioned in the Corporate Income Tax Law and its implementing regulations, those directly targeted at high and new tech enterprises (which can include those in the green sector) and the Value-Added Tax and Business Tax incentives for energy-saving service companies effective January of this year.

Government financial assistance to the renewable energy sector also comes in the form of subsidies, feed-in tariffs (specifically for wind and solar), and investment by state-owned investment vehicles.  Additionally, concession programs, mandatory grid connections, electricity purchase, and market share, in addition to cost sharing and carbon markets play a supportive role.

Government incentives and support in the renewable energy sector also come at a local level.  For example, local government support for renewable energy development is particularly strong in Jiangsu Province, which has the largest number of environmental protection-related firms in mainland China and excels particularly in the area of wind power.  Jiangsu will establish 7000 MW inter-tidal and offshore wind farms by 2020.  The primary city in this development is Nantong, which has a current wind power capacity of 992 MW and a targeted wind power and installed capacity of 3000 MW by 2015.

Cities in Jiangsu Province are in fact redefining themselves with developments in the green sector.  A prime example is the city of Yixing, traditionally known for its green tea and clay teapots, which now has an Industrial Park that offers both tax holidays and significant tax reductions (up to five years) for the establishment of green tech companies.

A strong wind indeed.

Dezan Shira & Associates is a specialized foreign indirect investment practice, providing business advisory, tax, accounting, payroll and due diligence service to multinationals investing in China, Hong Kong, India, and Vietnam. Established in 1992, the firm is a leading regional practice in Asia with nineteen offices in four jurisdictions, employing over 170 business advisory and tax professionals.  To contact Dezan Shira & Associates please email info@dezshira.com or visit www.dezshira.com.Samantha.  Samantha can be contacted at Samantha.jones@asiabriefingmedia.com

To read another article from Dezan Shira & Associates on establishing a WFOE in China please click here