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Martin LaMonica

A View from Martin LaMonica

Why Energy Startups Need a China Strategy

An expert on China and natural resources says companies need to understand the workings of industry and government to get a foothold.

  • June 19, 2012
Made in China: Solar photovoltaic panels cover the front of Suntech headquarters in Wuxi, China.
Credit: Chen Cao

It’s obvious to many that China is taking the lead in deploying new energy technologies. But figuring out how to operate in China as an outsider is often difficult.

The Harvard Kennedy School of government today is hosting a symposium on the shifting role of China in the world, and the impact of China on energy and natural resources is one of the first topics to be discussed.

For some insight into doing business in China, I spoke to Edward Cunningham, an assistant professor at Boston University’s Department of Geography and Environment, who is moderating a panel at the conference on energy and resources. He painted a picture of a complex business environment, where having a good read on regional economic and political dynamics is critical to a foreign company’s efforts.

“It used to be that understanding the political and economic landscape before entering China was less important, but in the last five or six years [Chinese companies] have started to affect global prices,” he said. “So you need a China strategy just to understand the value chain and cost structure in many vertical industries.”

In solar energy, for example, the impact of Chinese manufacturers has been swift and dramatic. The cost of polycrystalline silicon for solar cells has plummeted in the past few years and Chinese panel producers have ramped up rapidly, leading to a major drop in prices. The resulting brutal solar industry shakeout is not expected to slow down for at least another year.

Boston Power CEO Christina Lampe-Onnerud receives certification from the China Environmental Certification Institute for the company’s lithium-ion batteries. Credit: Boston Power

China is seen as taking the lead in deploying emerging technologies from energy startups at large scale. For example, lured by investors and government incentives, lithium-ion battery startup Boston Power last year shifted its operations from Massachusetts to China to build a factory for electric-vehicle batteries. State-owned power companies are also investing billions of dollars to upgrade the grid infrastructure with equipment such as high-voltage transmission lines.

And while the financial meltdown in Europe and the U.S. has slowed investment, Chinese banks are often ready lenders for infrastructure projects supported by the government, Cunningham said. This environment opens up opportunities for foreign firms to deploy their technology, but Cunningham warns that it’s an uneven field.

Chinese state enterprises are typically unwilling to take risks on innovations or business models that stray too far from traditional heavy industries, he said. Successful small and medium-sized foreign businesses have been able to expand their business in China, whether it’s a large battery factory or a test site for a coal-to-natural-gas plant. But often, it’s important to find a local political leader with an interest in advancing certain projects, Cunningham said.

“There are examples of many corporations in China that are open to new technologies like those for increasing energy efficiency and moving away from manufacturing and into services,” he said. “But it’s not a given, so you have to spend a lot of time thinking through and identifying those partners.”

With China emerging as a major producer and consumer of energy products, be it solar panels or electric vehicles, knowing the lay of the land has never been more important. 

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