China and Cleantech in 2019: The Innovation Ecosystem and Paths to Market Entrance
Our recent Next-Gen Energy & Cross-Border Innovation Summit in Nanjing looked at cleantech investment trends, market dynamics and commercialization opportunities in China. This was our ninth event in China and a focal point of our efforts to guide and connect western innovation companies to Chinese partners and customers. Here, you’ll find insights into power, energy and mobility, as well as pointers on market entrance from the summit.
China’s cleantech lay of the land
China’s market potential is perhaps the biggest reason why foreign companies are attracted to the country. In the automotive sector, China accounted for 30% of global vehicle sales in 2017. Demand for energy has historically been high due to China’s manufacturing-based economy. Even with the transition towards a service-based economy, energy demand remains high as a percentage of total global demand. The speed and scale of development in China is another attractive factor in foreign cleantech innovation companies. Domestic companies like Tencent, Baidu, Mobike and Didi have achieved scale in a very short amount of time. Granted, these technology companies are more digitally-focused than traditional hard science. Nevertheless, demand for homegrown cleantech innovations, particularly in the transportation sector in technologies such as electric vehicles, EV charging infrastructure and autonomous driving, show similar trajectories with an exponential amount of investments since 2014, according to data from our i3 platform.
The role of policy in promoting innovation
Policy and government regulations are also critical factors in driving the development of cleantech innovation. Starting at the national level, strategies such as The Belt & Road Initiative, Strategic Emerging Industries, and Made in China 2025 have established incentives for cleantech solutions. In the example of electric vehicles, China has set ambitious targets in leading the world in EV adoption and its Ministry of Industry and Information Technology announced a plan to ban sales of internal combustion engine vehicles. Punch Powertrain, became the European cleantech unicorn of 2017 when it was acquired by the Yinyi Group. They shared with us their own analysis of potential EV growth in China, given their current positioning in the market serving most Chinese OEM’s with electric drivetrains. Their conclusion: if EVs are extrapolated onto the path of typical past technology S-curves, then don’t be surprised if China’s vehicle production output by 2025 is around 85% electric, for one simple reason: they will be way cheaper.
Digital technologies in transport and energy
China is also taking a lead in developing digital technologies, particularly in the transportation and energy sectors. Four months ago, we unveiled our inaugural APAC 25 list, a new sister list to the Global Cleantech 100, where China topped the chart with seven companies. Not surprisingly, transportation and energy were the top sectors represented, and we had the pleasure of having two of those seven companies share their stories at the Summit. Equota Energy shared a case study of its artificial intelligence (AI) solution optimizing a utility’s end customer’s energy consumption that resulted in $2 million in cost savings per year. Momenta AI, which is developing the brains of autonomous vehicles by tackling the key challenges around vehicle sensing, perception and machine learning, received a regulatory permit in fall 2018 to test its level-4 autonomous driving technologies on public streets in Shanghai.
China Market Entry
Intellectual protection (IP) is the top concern for every entrepreneur considering entering the Chinese market. IP structure and enforceability were two topics that were discussed during the Summit’s workshop as methods to remedy the potential risks. More importantly, aligning interests with future Chinese partners and customers is regarded as the most effective method in protecting a company’s IP. In essence, keeping the core IP at home and structuring the partnership in a way that both sides benefit has proven to be the best working model for foreign cleantech companies, according to the five to six experienced Chinese cross-border practitioners we brought to this workshop.
The challenge of exclusivity
Partnerships and joint ventures are two of the most common approaches taken by western cleantech companies to date. The objective is to establish a pilot project to prove the technology while demonstrating commercial viability in China. Once a success case is established, the idea is to then build on larger scale partnerships/contracts with more leverage for western technology companies. One common challenge is exclusivity, which Chinese partners will almost always ask for. Because China still operates on a regional basis (province by province, each having its own set of rules and incentives), granting full China exclusivity risks the potential of leaving future value on the table and missing out on other parts of the Chinese market.
There isn’t a one-size-fits-all China market entry strategy for cleantech companies. But it’s clear that China’s market potential and desire for superior western technology solutions still makes it an attractive market for foreign companies to consider, notwithstanding geopolitics and trade wars.
Feel free to share with us your China journey either in the comments section below or reach out directly at research@cleantech.com.
