Clearing China’s smoggy skies could clear profits for U.S. companies in the pollution control business — if the communist nation is serious about fixing its air quality nightmare and encourages foreign companies to market their solutions.
China’s pollution problems are well-documented. As its urban population skyrockets (more than a half a million people moved into Beijing in 2012 alone, increasing the population to 20.69 million) and energy consumption increases (an 84-percent increase from 2011), its air quality degrades.
The Chinese government recently unveiled its Action Plan for Air Pollution Control (2013–2017), which will dedicate 1.7 trillion yuan ($277.7 billion) toward pollution control over the next five years. This commitment by the government to exert some air pollution control measures has created an opportunity for U.S. companies in the industry to gain a slice of the Chinese pollution-control market.
And that’s just what some U.S.-based manufacturers are doing, though there are obstacles.
One U.S. company that has established a beach-head in China is Fuel Tech, a giant in air pollution control systems. Fuel Tech entered the Chinese market a little more than a decade ago and opened its first full office in Beijing in 2007, said company CEO and Chairman Doug Bailey. The Beijing Fuel Tech branch has 35 employees and subcontracts all the equipment the U.S.-based headquarters of Fuel Tech would sell. The company’s employees are predominantly engineering-based.
“We’re fully staffed by local Chinese citizens, and I think that does help us with local businesses looking for services like we offer,” Bailey said.
Bailey and other air pollution control company execs agree that the economic growth of China has far exceeded its pollution control. The potential for U.S. companies to take advantage of the new Action Plan for Air Pollution Control will depend on how much business they’ve done in China in the past, they said.
“If you haven’t been working in China and already established a relationship there, it’s going to be very hard to get started,” said Martin Berndt of DenTech, an air-pollution control company based in Pennsylvania.
Another factor to consider when it comes to how much market share American companies could conceivable carve up for themselves is the quality of Chinese companies.
“Local companies trying to take advantage of the regulatory wave are absolutely a threat,” Bailey said. “They see the opportunity, and with improved technology and facilities that they have and are building, you are seeing local Chinese companies emulating what we (U.S. companies) are trying to do.”
Another American company trying to break into the Chinese pollution-control marketplace is Anguil, a Wisconsin-based outfit that has had offices in the UK and China for the past 15 years. Anguil specializes in industrial air pollution control, emission abatement and energy recovery systems, as well as designing manufacturing and installing thermal and catalytic oxidation technologies.
The company sells mostly thermal and catalytic oxidizers out of its Chinese office, said Kevin Summ, Anruil’s marketing manager. In the last three years, inquiries for Anguil’s products in China have gone “way up,” with the carbon-fiber industry in particular seeing increased market share, he said.
“The inquiries have always been there, but now the inquiries are getting more substantial and more specific from China,” he said. ”They even cite EPA regulations that they want to meet, which is new.”
But Summ is a little dubious as to how serious China is about air pollution control.
“You never know how seriously to take China on some of these pollution regulations,” he said. “You’d love to see the biggest market for your products that you can, but things have been coming along slowly, and you don’t want to get too far ahead of yourself in expecting China to change rapidly.”
For smaller U.S. manufacturers in the air pollution control industry, though, the sheer vastness of the Chinese market is intimidating.
“For us, the biggest issue would mostly be the marketing, sales, and communication process, and really finding and connecting with the right entities who could get (our products) into the right hands,” said Andy Bartocci, the national sales manager for EnviTech, a small San Diego company. “We’ve been approached by Chinese businesses before who make all kinds of promises, but in reality they’re not as well-connected as they say.”
Furthermore, the cost of starting up a manufacturing facility in China and shipping machines there would be excessive, he said.
“In theory it’s a big opportunity in China,” Bartocci said, “but as a small company we haven’t figured out how to make it work.”
Bailey said he expects the Chinese government’s new air pollution-control money will go to both foreign and domestic suppliers, but that a large slice of it will be earmarked for vehicle emissions issues. The exhaust treatment industry is one of the pillars of China’s environmental protection industry, according to a recent report from the business intelligence firm Research and Markets. Its market scale increased from 18.5 billion yuan in 2006 to 38.7 billion yuan in 2010, with an average annual growth rate of 15.9 percent.
Companies working on controlling VOCs (volatile organic compounds) have seen an uptick in business from China, and the biggest beneficiaries of China’s new policies will be companies in noxious control, said Stan Mack, a business manager at BASF and vice president of the Institute of Clean Air Companies, a trade group of manufacturers in air pollution control.
“Those will be the big players, along with some of the U.S. companies working in license technology,” he said. “But I don’t think you’ll see a lot of U.S. systems people in China; they’re fearful of exposing their technology to the Chinese companies and thereby creating new competition.”
Whether the Chinese government will follow its investment of billions of yuan with vigilance and enforcement of its air pollution control measures is anyone’s guess.
But Bailey of Fuel Tech sees a historical parallel to the developments in China.
“I think you’re starting to see that the people of China are demanding better air quality, and will continue to do that,” he said. “It’s a little bit of a repetition of what we saw in the U.S. years ago, where certain cities like Los Angeles or Pittsburgh were very smoggy, and the industry gave us a level of air quality that was required.”