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In the year On September 22, 2020, Chinese President Xi Jinping made an unexpected announcement in his speech to the United Nations. China has announced that it aims to “peak carbon emissions before 2030 and achieve carbon neutrality before 2060.”
China’s net zero goal has strengthened the financing landscape for the country’s climate technology sector. Spurred in part by the regulatory crackdown on Internet companies, investors in China have sought to align their portfolios with government policy. The trend has provided a tailwind for electric vehicle makers and clean energy startups, which Beijing sees as critical not only to its climate goals, but also to its strategic and economic interests.
The different fates of high-tech sectors in China
Chinese climate technology experts say Xi’s speech marks a major shift for the industry. According to Yafu Zhao, head of climate fintech at New Energy Nexus, Chinese venture capitalists have shown strong interest in climate technology since President Xi pledged to achieve carbon neutrality. “Everybody feels like they have FOMO, the fear of missing out.”
Compared to startups focused on decarbonization, consumer-facing tech companies have had stronger ties to Beijing. In the year In November 2020 – two months after Xi’s UN speech – Chinese regulators blocked the initial public offering of Ant Financial, an affiliate of e-commerce behemoth Alibaba. The aborted IPO sparked a crackdown on China’s internet giants. In the year In 2021, the Chinese government introduced new laws and penalties aimed at cracking down on monogamous practices, wealth inequality and other social problems. The moves have worried shareholders in sectors ranging from online education to gaming.
Public markets are valued under the influence of Chinese government policy. In the 12 months following Ant Financial’s IPO attempt, the Hang Seng Tech Index, which includes several of China’s top Internet and technology companies, has fallen more than 25 percent. However, the CSI New Energy Index, which tracks China’s clean energy stocks, rose 100 percent over the same period.
China learned from the West how to use private capital, and the West learned from China how to use policy to guide and promote industry.
Data from the Pitchbook provides a window into how the development of climate technology has played out in private markets. By 2020, VC firms have invested $5.6 billion in 130 Chinese climate technology deals. By 2021, funding has risen to $8.7 billion across 211 agreements. Investment firms such as Hillhouse Capital, which has helped pioneer private equity in China, have set up climate-focused funds. Lightspeed China Partners, a top early stage VC firm, has raised funds for sectors aligned with government policy, including climate technology.
Many observers note that investors in any country take cues from policy makers. “It’s strategic to align with government policy wherever you are, but also in China,” said Marilyn White, co-founder and managing director of the Climate Finance Fund, a China Clitech podcast supported by the Hewlett Foundation and Europe. Climate Foundation.
However, the Chinese government’s model means that the country’s policies can be particularly influential, said Dan Kamen, an energy professor at the University of California, Berkeley. Kamen, who has a research partnership with four Chinese universities, said, “Because the Chinese system is centralized, when you commit to something, you commit to it.”
Who invests and in what?
According to a leaderboard maintained by Crunchbase, Sequoia China, the US-based arm of Sequoia Capital, is the most successful investor in China. The company is one of China’s most active backers of climate tech startups, and deals have accelerated in recent months. In the first half of 2022, Sequoia China participated in 11 climate technology deals (15 percent of its total deals). In contrast, from 2017 to 2021, the agency made an average of three climate technology deals each year (accounting for just 3 percent of its total deals).
Over the past five years, nearly half of Sequoia China’s climate technology has focused on this theme: sustainable transportation. These mobility deals include high-profile electric vehicle companies like ROX Motors and Xpeng Motors, as well as well-funded “micro” startups like Meituan Bike. Sequoia has cut checks to Neptune Robotics, a startup working to reduce the carbon footprint of China’s maritime fleet, and HT Aero, an “urban air mobility” company that has raised $500 million to develop flying electric cars.
White, who previously led clean energy financing at the Hewlett Foundation, welcomed investors’ interest in transportation. However, she warned that other sectors also need investment to decarbonise. “There are all these solutions like land use and agriculture that we hear a lot about, but that’s it [can be backed] With venture capital and scalable, “I think we could use more climate tech/ag tech nexus funding, especially in a big market like China.”
Chinese agtech venture capitalist Walter Ge agrees that electric vehicles and other new energy technologies such as batteries and solar panels are getting the lion’s share of climate technology funding. However, Ji explained that while China’s decarbonization policies are “spread across sectors”, he also expects that “the money will spread to different sectors in the future”.
Private VC firms like Sequoia China aren’t the only investors making big bucks in China’s climate technology. Government funded climate investment. Shenzhen Capital Group has backed several energy storage and sustainable transportation companies, including four in the first half of 2022 (representing 21 percent of total deals, up from just 2 percent on average for 2017-2021, according to Crunchbase data). The fund is linked to the Shenzhen provincial government, sometimes referred to as “China’s Silicon Valley”.
These regional investment funds are powerful players in China’s technology sector. “Every provincial government, even every city government has this kind of fund,” said Hong Miao, director of the Sustainable Investment Program at the World Wealth Institute’s China office. Meanwhile, China’s central government has established a $13 billion National Green Development Fund, which it is using to encourage private capital investment in areas such as green steel.
China’s private corporations and state-owned enterprises (SOEs) have helped nurture climate technology. China’s biggest tech companies, including Alibaba and Tencent, have pledged to achieve zero emissions into the atmosphere by 2030. The on-demand giant has created the Meituan Green Tech Fund to support Meituan research. SOEs, which account for about 25 percent of China’s gross domestic product, have similarly launched plans to respond to Beijing’s net zero goal.
As China goes, so goes the world
Any path to solving the climate crisis will go through Beijing. China in 2010 It will account for 30 percent of global greenhouse gas emissions by 2020, surpassing the 10 percent emissions attributed to the United States. Economic cooperation and development, with the European Union.
As a result, this goal of climate neutrality was mainstream climate news. “China’s 2060 policy is very influential,” said Kamen, the 2007 Nobel Prize-winning head of the Intergovernmental Panel on Climate Change. “2060 is a little bit further than we want, but it’s no different than the US strategy to become carbon neutral by 2050, depending on how much coal China is mining.”
China has become a major investor in the clean energy transition to meet its climate goals. A February report from Bloomberg New Energy Finance named China “the world’s low-carbon cost growth engine.” In the year China accounted for $266 billion, or 35 percent, of the $755 billion spent globally on low-carbon technologies by 2021 (including public and private investment). This number is BNEF’s report shows that $135 billion in 2020, or 27 percent of that year’s global low-carbon investment, will be withdrawn.
I think we could use more climate tech/ag tech nexus funding, especially in a big market like China.
Most of China’s climate technology spending is on deploying relatively mature technologies, including solar panels, wind turbines and electric vehicles. However, policymakers and investors have invested heavily in developing early-stage technologies. Chinese startups have received more than one-third of global venture capital funding for the low-carbon technology sector.
Climate technology and US-China competition
In addition to its climate implications, the energy sector’s connection to national security and economic freedom is strategic. As part of the “Made in China 2025” plan released in 2015, Beijing has identified 10 key strategic industries to develop. The list includes “new energy and energy-efficient vehicles” and “power equipment”, a category that includes solar panels, wind turbines, hydropower and nuclear energy infrastructure. According to the plan, China hopes that three of the five largest electric vehicle companies in the world will be Chinese, and that Chinese companies can gain an 80 percent market share in renewable energy equipment.
The US has recently adopted a similar approach to developing its climate technology sector. The inflation-reduction legislation signed by President Joe Biden on August 16 provides more than $300 billion in incentives to support clean energy, electric vehicles and other green technologies. The law will largely require companies to build supply chains in the US and allied countries.
The US and China seem to have learned industrial policy lessons, said Miao of the World Resources Institute. “China learned private capital from the West, and the West learned from China how to use policy to direct and expand industry,” she observed.
Beyond climate technology, competition is taking place in other high-tech sectors, particularly semiconductors. “For semiconductors, it’s all about technological freedom,” said Zhao of New Energy Nexus.
China’s $14 billion National Green Development Fund is the country’s second-largest public investment fund, trailing only semiconductor-focused “big funds” that raised $20 billion and $30 billion in 2014. In the US, the Inflationary Reduction Act is followed by the CHIPS Act, which allocates more than $50 billion to US semiconductor manufacturing.
Could US-China competition drive climate technology development and deployment? UC Berkeley’s Kamen said the US and China are “needed” because they have strong strengths. “One is a little bit better on the innovation side – just because the university system in the US is very good, the national laboratory system is very good – and China is good in terms of size,” he explained. “I would say America has a small innovation advantage, China has a big deployment advantage.”
The Climate Finance Fund’s colleague agreed that the climate would be better if the two countries cooperated rather than in competition. “I don’t see how we can solve it. [climate change] In silos,” she said. “I don’t find the rhetoric coming from America right now to be helpful in fostering cooperation and collaboration to create a better planet for all.”
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