China's OFDI in US Renewable Energy and Clean Technology

Last Tuesday, I had the opportunity to share dinner with and ask questions of several incredibly distinguished panelists specializing in renewable energy and clean technology, particularly investment by China recently in the green industry. There was an overwhelming sense that despite what some experts say about the unreliability of green energy, it is the place to invest in the coming decades.

            Why is it a place to invest? Because there are a number of push and pull factors that are, one way or another, going to bring unthinkable resources to the United States, especially to invest in the green tech and energy industry. These include a desire by Chinese companies to diversify their holdings, plans to target, and an available workforce of Chinese students who were educated in the United States. In addition, the Chinese government's five year plan names seven strategic emerging industries (SEIs), three of which are in green industry. These include new energy, energy conservation and environmental protection, and clean vehicles. Finally, the United States is home to more than a third of the worldwide green industry companies.

            While the green tech scene is tempting, there are also some bumps in the road. China and its companies have been the most dramatic victims and abusers of political risk, to great effect and loss. Sun Tech, one of the largest producers of solar panels in the world, was recently the largest bankruptcy yet in the green industry. While the solar industry is struggling to rebound from a crash and an oversaturated solar panels and systems market, technology is improving every day and demand is still steadily increasing. Finally, there is the issue of national security and the line between protecting the United States and interfering in free trade. The Committee on Foreign Investment in the US, or CFIUS, is the only government body that oversees foreign acquisitions of American companies on the scale that is going to become commonplace in the coming decades. It approves more than 95% of all projects that it oversees, usually with minimal alterations to provide for the exclusion of military contracts. However, a recent 2012 case involving American Ralls Corp and the Chinese Sany Group over an acquisition for development in Oregon was denied on grounds of national security, but was acknowledged as a non-risk by top military officials.

            The biggest question about green industry investments though, is not when, where, or which companies, but rather how. A top senator was involved with a plan to develop a $5 billion complex in Nevada with the backing of a Chinese corporation, yet extreme misunderstandings between the responsibility of the State of Nevada and the Chinese company lead to the deal falling through. What happened? The way companies do business in China is very different from the way business is done in the United States. Tax law, zoning regulations, environmental standards, and more are all different. Most significantly, the political scene in the United States is completely unpredictable. In China, anything good for the economy flies. In the US, not so. It will be interesting to see how Chinese companies find a way invest in the United States. For every headline success, there will be failures as well.

The panel event was sponsored by the Global China Connection, Center for East Asian Studies, and the International Relations Program and moderated by GreenWorld Capital LLC's Managing Director and Founder, David Elkin. For more information about GreenWorld webinars and resources, visit their website. For more information about CEAS events, please see their calendar here.

F. Miller SAS '13