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How China’s economic development zones are turning green

by Joe Cash
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Reaching peak carbon emissions and achieving carbon neutrality has not only become a common goal in the international community, but it has also become a part of China’s national strategy. As pioneers of China’s economic development, national economic and technological development zones (NETDZs) have launched a series of measures to contribute to green development – so what should you look out for when investing in them?

Reining in industry’s contribution to carbon emissions will be key to fulfilling China’s carbon neutrality policy. The 230 national economic and technological development zones (NETDZs) that the Ministry of Commerce (MofCom) has approved to date are responsible for 11% of China’s GDP despite only occupying 0.32% of its geography. Targeted and localised action aimed at making the country’s economic zones more environmentally friendly, therefore, holds enormous potential in terms of making Chinese industry greener more broadly.

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While numerous economic zones have been quick to adopt green principles when considering their development, further funding is required to realise a green transition of such magnitude. Analysts estimate that China will need to invest over RMB 100 trillion over the next 30 years to reach its goal of carbon neutrality. While extraordinarily high, that number is not an impossible target given that China manufactures much of the technology and equipment necessary for decarbonisation. And the country should expect to continue to receive significant investment – both foreign and domestic – in its green industries as a result.

But a sophisticated policy framework will be required, too. Unfortunately, that is something that is lacking at present. China’s 14th Five-Year Plan simply commits to reducing the carbon and energy intensity of China’s GDP growth. It lacks specific targets. Thankfully, local governments are taking the initiative to formalise their province’s contributions to achieving carbon neutrality. The Hainan Free Trade Port initiative, for example, has put green finance, ecologically-friendly tourism and research and development into green technologies at the centre of its development agenda. Beijing has followed suit in the pursuit of its new professional services pilot free trade zone, and the same negative list for trade and services in Hainan will also be applied in the nation’s capital.

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According to MofCom, 36 NETDZs have made “outstanding achievements in green development and upgrading”, but that means there is a still long way to go in terms of harnessing these areas so that they can drive China’s green transition.

Firstly, as industrial clusters, NETDZs have high energy consumption and carbon emissions, the latter of which accounts for 10% of the entire country’s carbon emissions. With various industries and complexities found within the zones, a green transition will be more difficult than it would be for other areas. Secondly, coal still dominates the power supply; transitioning to 100% clean energy within the zones will be a difficult undertaking. Thirdly, the imbalance and mismatch in energy supply and storage between China’s eastern and western regions pose additional challenges. Lastly, there will be no ‘one size fits all’ green technology, strategy, or solution for industries located within the NETDZs, as they have various different technical requirements for carbon reduction.

China’s economic zones have become key to China’s efforts to pursue a green transition and industrial upgrading, and we welcome the growing UK-China collaboration in this field – Andrew Seaton, Chief Executive, China-Britain Business Council

Opportunities for UK-China collaboration as NETDZs go green

COP26 made it clear that international cooperation will be crucial if the goals of emissions reduction and environmental protection are to be achieved. As two of the largest economies, the UK and China not only have important roles to play, but they also have much to benefit from mutual cooperation in green development and technology.

There is great potential for cooperation between the UK and China if both countries play on their strengths to mutually work towards sustainability. UK manufacturing’s strengths, for example, lie in early-stage R&D and technology as well as later-stage servitisation, end-of-life innovation, and high-value manufacturing. On the other hand, China’s strength in manufacturing lies in the medium stage, where production and distribution take place. By taking manufacturing as an example, both countries’ strengths are found at different stages, and thus cooperation between the two will allow for both countries to fill in where they are least proficient and achieve a win-win scenario.

China needs assistance in pursuing structural reform so that it has the policies and institutions in place to support green development and innovation, not only within its various specialist zones, but across the economy at large. UK-China collaboration to this end has been successful so far. The Sino-UK Innovation Industry Park in the coastal city of Qingdao is one example, and hosts several British companies at the cutting edge of R&D in areas such as green and intelligent manufacturing, marine conservation, and AI and big data processing for manufacturing systems.

In the future, when investing in NETDZs, UK companies should pay attention to the NETDZs’ entry requirements, local industry preferences and green technologies, among others. More specifically, foreign investors should:

  • Do research and verify whether their own line of business could fit within the industries currently being promoted.
  • Evaluate the green, scientific and technological attributes of their own industries and ensure that they meet the green development requirements of NETDZs, so as to achieve more synergy and high-quality development.
  • Create a proactive dialogue with the local government of the intended investment areas and explore the availability of potential policies and financial support provided by local government so as to achieve optimal performance by aggregating their own advantages with external facilitation.
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Achieving carbon neutrality across China’s NETDZs will be key to hitting the country’s target of net zero by 2060. Given that there are only 230 of these zones and that they are collectively responsible for 11% of GDP, targeted action within these areas will have a disproportionate effect on the country’s ability to go green as a whole. In short, the NETDZs are an easy and effective place to start in terms of improving Chinese industry’s green credentials. “China’s economic zones have become key to China’s efforts to pursue a green transition and industrial upgrading. We welcome the growing UK-China collaboration in this field, and building on our Net Zero Report released at COP26, and believe that the UK and China working together offers great potential in tackling the critical environmental challenges we face,” says Andrew Seaton, Chief Executive, China-Britain Business Council.

While the green transition is an area where the UK has enjoyed a fruitful collaboration with China to date and will continue to do so into the future, whether China hits its target will require the implementation of a sophisticated policy framework that comes from the top. Local leaders in Beijing, Shanghai and Hainan should be commended for taking steps to draft policies that will make their own industrial areas more environmentally friendly, but their locales remain the exception and not the rule. There remain 200 NETDZs in need of reform if China is to rise to the enormous challenge its president has set. The clock is ticking.

Call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out how CBBC’s market research services can help you build knowledge and understanding of the Chinese market prior to investment.

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