China fuels green growth
In spite of often being labelled the world's top polluter, the mainland is becoming an attractive target for investors looking to capitalise on green initiatives, the development of new energy sources, and far-reaching environmental protection policies.
With 15 per cent of China's US$586 billion stimulus package allocated to eco-projects and clean technology programmes, analysts say mainland enterprises are luring investors looking to diversify into a new asset class.
But making sense of a fast-growing, complex and multifaceted sector requires careful analysis of investment opportunities and the factors that affect trends.
Shanghai-based Steve Lee, CEO of HSBC Jintrust, says that as the mainland government policy is clearly supportive of green initiatives, the sector promises strong growth potential. 'The mainland's demand for cleaner, more diversified energy sources has created many new investment opportunities, but inevitably, there will be winners and losers. The challenge is identifying the winners from the losers,' Lee says.
He says that with China's commitment at the United Nations Climate Change Conference in Copenhagen in 2009 to a 40-45 per cent carbon emission cut by 2020, some mainland companies may undergo structural changes to meet these requirements. According to official figures, by 2020, the mainland's total investment in new energy could reach 4.5 trillion yuan (HK$5.3 trillion).
Lee says experienced analysts, who have built up specialised market segment knowledge, have enabled HSBC to successfully launch its Jintrust Carbon Awareness Fund, the first equity fund on the mainland to focus on low carbon businesses.
The fund is now only available to mainland investors but, according to Lee, there is a strong possibility a similar product could be developed for the Hong Kong market. 'All our analysts have been in the business for quite some time,' Lee says, adding that his team includes telecoms, equipment manufacturing and renewable energy specialists. Lee expects career prospects for green analysts to expand as the sector develops.
He says the Jintrust Carbon Awareness Fund not only focuses on new carbon-efficient industries, but also on traditional ones that improve carbon emission performance with new technologies and by upgrading systems.
'In addition to the more obvious newer industries, including wind power, solar and hydro, there is a requirement for analysts to look at the way traditional companies can adopt technology and upgrade systems so they can become attractive investments,' Lee says.
Recruitment firms say experienced analysts, required to work in the mainland's sector, are in tight supply.
Eunice Ng, director at Avanza Consulting, Pacific, points out several reasons for this. 'In most cases, analyst must also be bilingual, they must also be prepared to spend a lot of time on the mainland visiting companies and talking to regulators and policy makers. As a relatively new sector, there are not that many who have the combination of knowledge and experience, and, at the same time, get prepared to enter this new market,' Ng says.
To make life easier for analysts and investors, a recent suggestion from the People's Bank of China proposes the need for the country to compile an investment guide to help potential investors better understand the scope of green projects. Last year, the mainland set up a green finance framework for green financing, but it is still at the initial stage.
Compared with institutions that have set up investment structures specifically to invest in the country's green and new energy sector, mainland banks are mainly supporting China's green initiatives through lending polices.
In the quest for new energy, the mainland is also investing in the exploration of shale gas and coal-bed methane, also known as unconventional gas.