On Friday, November 14, I was able to catch the last section of the two-day green tech summit held in Shanghai. This summit is the companion event to the US-China Green Energy Conference, which Crossroads will be covering this week. Check out: http://ucgef.org/en/activities/beijing08/overview to look at the list of speakers. Crossroads will be taking notes on each of the presentations and offering side interviews as well.

Getting back to the Shanghai summit, I was able to catch panel 10 on “New Business and Financing Models” and a breakout session titled, “Competition & Regulation: What you need to know about China’s Green Technology Market.” Below are my notes for each the panel and breakout session.

Panel 10:
•    Government incentives are crucial in order to finance a greener economy.  Government must take the lead to help with start-up costs and the government’s policy innovation is the precursor to establishing a green market. A case in point would be San Francisco with their Solar Task Force, which cuts the cost of solar installation at different rates for residents, commercial buildings and nonprofits. If you look at the cost for solar, the only states in the US that are going for it are California and New Jersey because they have these government incentives.
•    When it comes to financing technology companies, inherent conflicts exist between: the cost of technology and the profitability of the firm and the growth of a region and meeting pollution reduction goals. There needs to be a good working relationship between government, technology businesses and investment banks in order to mitigate these conflicts.
•    There were a couple comments on the effects the financial crisis has brought to the financial sector for green tech. As a result of the crisis there is now higher equity and lower returns. In addition, it used to be all about collateral, but now it’s about the ability to re-pay: equity is not what it used to be.
•    China is showing a move away from the institutionalized banking system since they can now establish small loan companies. These small loan companies give money to SMEs (Small and Medium Enterprise).

Breakout Session:
•    Moderator David Gossack from the US Consulate General Shanghai highly recommends “Clean Energy: An Exporter’s Guide to China.” Check out www.export.gov or contact him directly to receive a copy.
•    Benjamin Pinney, from the Boston Consulting Group gave a refreshing overview of discussions at the two-day summit. He said he heard people talking about “solar collaboration” and “grid-parity.” He finds solar collaboration to be flat wrong because solar is about competition not collaboration. In addition, we are a long way off from even coming close to talking about grid-parity.
•    Mr. Pinney also had an excellent point about China’s consumer attitude about environmental protection that I think was dead-on. He said that we have to remember that alternative energies are a security issue and, thus, it is heavily financed by the defense bureau of government. Therefore, since consumers aren’t the one financing it, they only become aware of environmental protection and its importance because its being told to them from on-high. This type of “education” does not make them feel empowered because there is no role to play.
•    Regulations to achieve national goals: Renewable Energy Law (2006), Top-1000 Enterprise Energy Efficiency Action Plan (2007), Middle and Long-term Development Plan for renewable Energy (2007), tax incentives for renewables, and subsidies for renewables.
•    It is important that all sectors (wind, solar, hydro, etc.) do not have equal access to the market, government incentives, etc.
•    Charles McElwee gave a great presentation answering the often asked question: Can I do business legally in China?
1)    There is a catalog for foreign investment that is encouraged, restricted, prohibited, and other. See where you fall under these categories.
2)    What form of business? Contracting (easiest), establish a representative office (difficult), joint-venture (ok), WFOEs (ok).
3)    What about my IP (intellectual property)? Chinese businessmen do not use long contracts and the civil law system is not well developed. Also not a lot of case law to figure out ambiguous legal clauses. For dispute resolution don’t go to a Chinese court, arbitration is best. Arbitrary bodies include CIETAC, SAC and internationally Hong Kong’s HKIAC (preferred by the PRC).
4)    Major laws: Renewable Energy 2001, Conservation laws (April 2008), and be mindful of the Foreign Corrupt Practices Act (i.e. do not pay for guanxi)
“Slow, steady and wary wins the race in China”
•    According to Robert Theleen, Chairman of Chinavest, 90% of China’s bank loans go to State-owned enterprises and 10% to SME’s/private sector. Access to capital and bank funding has slowed in China, thereby changing the landscape of due diligence with commercial liability. Now, China finds the cost of capital as the most important, which is a sign of sophisticated banking.
•    An innovative technology came from the Solar Environment Technology Corporation case study. CENICOM is soon to be on the market. There technology can store solar energy for 5-10 days as opposed to the common 5-6 hours for existing solar thermal systems. There are no emissions and can be used with both local and regional grids.
•    The session closed with a recommendation to look for locally-sourced capital since it is your best bet for panicked-driven capital.
One interesting magazine distributed at the conference was called innocomm, published by the Knowledge & Innovation Community. Check the bilingual site out at: www.kic.net.cn
More to come this week from Beijing!

A Step closer to Microfinance in China Microcredit lenders ermerging in China By Wang Lan, is an article that looks to shed some light about the stage and interpretation of microfinance in China.

By definition, microfinance is the service of giving very small loans (as little as $20) to very poor people without assets or collateral. These types of loans are typically given to a group of people, who commit to help each other when someone in the group is not able to make a payment. As I read the article I quickly noticed that the term microfinance was used in a very loose way, which included giving loans and credit to small to medium business owners.

“Microcredit lenders, once the quaint peripheral players in China’s mammoth financial system, are emerging from the shadows of the State-owned banks as white knights to thousands of small, cash-strapped manufacturers around the nation.

The spate of bankruptcies in the manufacturing sector, particularly in the Pearl River Delta region, has prompted the government to act by selectively relaxing credit controls three times in the past two months.”

This is could be good news to local and international microfinance/poverty alleviation organizations with projects in China, if it means these laws will provide microfinance financial institutions (MFIs) with more access to capital. Since local microfinance MFIs often do not have the accountability and transparency needed for access to capital from big banks and lending institutions, they rely on microfinance banks, such as the Grameen Bank to help them with capacity building and financing.

The article continues to explain how in 2005 the People’s Bank of China, initiated the first government-lead pilot project to promote and support rural poor and agriculture, which was later modified to provide loans to small business owners who had been affected by tighter monetary policies.

Perhaps because of China’s size nothing is “micro” here. If the goal is to help cash-strapped small business owners and to stimulate the economy, it may take some time until the very poor gain access to microfinance services, at least from the major national banks.

Below is a series of questions asked by China Crossroads to Dr. Esslinger following last Friday’s green design coverage. Read on!

1. Earlier at URBN you talked about how when you started in the design business, designers did not have a prominent role to play. This has changed significantly since the 1970s. Why the change and how far are designers going with their expanding roles?

First of all, it were both visionary CEOs like Akio Morita or Steve Jobs, who have recognized the multiplying effects of DESIGN to a company’s success. However, even as 80 percent of BMW’s customers claim that their buying decision has been “bccause of the design”, BMW only spends 0.1 percent of its product investment on design. Ultimately, design will become so important, that the CEOs of the future will be designers – and not engineers or financial specialists.

It actually is the stage 1 (product genesis) where most designers have no influence yet. Briefings and definitions for new products are too much defined by money and defensive marketing. My message is, that we designers have to become equal partners in this stage, which will enable us to provide positive change on principles.

Today’s thinking is to manage recycling. We must think ahead and avoid the amount of new products, especially when the existing ones just have one tech-component, which may become technically obsolete. I think of smart modularity and a switch of “product” to user-experience and exciting services. Very simple: avoid the problem of overproduction so you don’t have to deal with the pollution.

Sad fact is: most consumers only decide by money. When the gas prices rose in the United States, people realized that their gas-guzzling SUVs were an idiotic choice. Our challenge as designers is to make “green” both attractive and affordable. Naturally,this also requires some strategic re-thinking of the industrial model such as Open Source Design.

In 1969, frog design started indeed with a very idealistic vision and during our first years, we all had an open discussion about our salaries within a fixed budget. But “capitalism” in the form where performance is rewarded doesn’t stifle creativity – to the contrary. If I understand you right, you probably mean the limitation of designers by budget-driven short-sightedness – however, I have seen this in all kinds of economic models. Important is that designers are competent and contribute as professionals in executive teams.

First of all, we are really happy and proud to have a frog studio in Shanghai, probably the most dynamic city on Earth right now. In terms of our services, frog practices the convergence of physical products and virtual software experiences since about ten years. Our key challenge is to become a good “citizen” of Shanghai and China and I think, we are on a good way. In terms of work, I always loved the most difficult projects and there are many here.

6. Finally, in the most concise explanation, what is sustainability to you?

Sustainability for me as a designer is to avoid the mistakes of wasteful mass production, to design with as little bits, atoms and energy as possible – and then to provide full customer satisfaction for many years and eventually inspire true happiness.

Dr. Esslinger is the designer behind the sleek sophistication we see with Sony’s television series by Wagas and Apple’s “Snow White” design language. During the 1970s, early on in Esslinger’s career, designers did not have a prominent role when it came to producing a good. Now, however, they have become more important players with new responsibilities. Dr. Esslinger shares his views on how a designer can incorporate sustainability concepts within a capitalist system of production and what he has done so far in his own company frog design (not capitalized for the Bauhaus concept of nonhierarchical relationships) and at the University of Applied Arts in Vienna with his students.

Below is an outline of two separate talks given by Professor Esslinger on Friday September 19th, 2008.

The Next Apple and Sony
There was a panel of three people talking about design using the case studies of Sony and Apple while trying to answer the question of what it takes to become the next heavy weight brand today. The two supporting speakers were Mr. Sydney Chun from Kohler Kitchens and Lorraine Justice, Head of the School of Design at The Hong Kong Polytechnic University. The main speaker was Dr. Hartmut Essliger, founder of frog design and Professor for convergent industrial design at the University of Applied Arts in Vienna, Austria. Sydney presented on what made Sony and Apple successful in terms of using design as a tool for solving business problems and achieving leadership. Lori, on the other hand, was interested in exploring design differences between East and West. She made an interesting argument about how Sony’s layout corresponds with the East’s visual pattern in terms of being more holistic and viewing objects in a relational manner while Apple represented the West in terms of being punctual with focused detail areas. Stemming from these presentations, Professor Hertmut got into the meat of the discussion on Sony and Apple, remarking that Sony was and is a very undisciplined company, while Apple is on track now that Steve came back to lead the company in the right direction. The reliance on the charisma of a leader makes the industry unsustainable in terms of pushing the envelope for environmental sustainability.

Dr. Esslinger then got onto the topic of his role as the “leader” of frog design. He doesn’t see himself as the main guy; the company operates on a democratic principle and he said, “They don’t have to listen to me. I have to shut up sometime.” This makes the work at the office incredibly dynamic and creative. He also went on to upcoming designers in China. He thinks that there is a huge potential for Chinese designers to bring product back to the center. He cited the example that, in Western countries, designers work on software, the “virtual” design components. Since the factories are in China, they can do more work with the actual material. His example was the iPhone. He thinks the iPhone has great software but crap for telephone design because you are still using a telephone pad to access texts. It’s also awkward to carry and handle. This could be where Chinese designers could really step in a make a difference.

GIGA v5: Green Creative Leaps

Part I The Designer’s Role in Sustainability

Dr. Esslinger opens the GIGA hosted event with global warming and the role designers play in its creation. The proper role of a designer is to “create objects which are useful art, inspirational and use as few atoms and materials as possible.” He criticizes the role of capitalism and its relationship to the designer by saying, “Today’s business mania about ‘shareholder value’ and ‘pleasing Wall Street’ results in more and more incorporate[d] behaviors that promote ‘financially safe’ and ‘politically correct’ conformity [and] stifles creative thinking….” He goes on to say, “As of today, we designers are systemic players in a financially aggressive, economic model which depends on multiplying products into thousands and millions.” In the end, design-like marketing is still about driving mass consumption and that is something a designer needs to acknowledge and address.

So how does a designer begin to address this paradoxical relationship between design and consumption? Esslinger goes through the production process of a good:
1.    Product Genesis (strategy and design)
2.    Production and Operations (applying materials, consuming energy, emitting pollutants)
3.    Usage and Consumption (consuming materials, consuming energy, emitting pollutants)
4.    Recycling (re-using materials, management of disposal waste)

He then goes through how to improve each step starting with 4 (recycling) and working his way up to product genesis. This clip plays cuts off after step 3.

Part II ELF and Open Source Design

When writing the post The Difficulty of Evaluating CSR Reports, I had not begun reading Sinopec’s 2007 Sustainability Report.

Had I, I would have had another example of just how wide the spectrum can be.

Using the image below as a start, for Sinopec, sustainability for them is about 3 things :improving the financial value of the firm, improving human capital,and improving the environment.  There are none of the pictures of executives helping children read or plant trees, and what “kids and babies” angles they did through into this went into the back

What they did cover, often, was corruption and how they had programs to deal with that, and they had programs that supported the development of their employees and their families.  It was like reading a state owned enterprise guidebook at time as I began to see that Sinopec’s angle on this document was not only honest.. it was holistic in many regards.

As an assessment under traditional means  Sinopec’s report as a pure environmental report was not complete.  they failed to mention many of the key programs I would have hope to see from an oil firm, and what programs they have are pretty thin at best.  I thought that there would have been more mention on R&D related to clean technologies - like a BP - or that there would be some discussion around their process to clean up their supply chain.  However, neither happened

However, by taking their view of sustainability out to a position of where a traditional CSR report is positioned it did force me to think about how different parties view sustainability in different ways. Surely everyone can admit that the system is not a perfect one, but what I found almost amusing in my second read was that Sinopec had some of the best statistics (and presentation of their statistics), unlike many firms that bury or hide numbers with in reports.

Where I would recommend this report for readers is to spend some time thinking about how China and the West see sustainability from a cultural perspective and how this highlights that gap.  It is not necessarily a bad thing that Sinopec took this route in their report, and I do appreciate seeing their view, but if they need to really work on their supporting information for next year so that we can see just what it is they are doing.

The Standing Committee of the 11th National People’s Congress just recently approved new regulations that are designed to green the country and combat the image as the world’s polluter. The laws promote a circular economy where:

…the government will step up environmental monitoring of carbon-intensive industries such as steel, power generation, oil refinery, construction and printing. Industries will also be required to introduce water-saving technologies and encouraged to switch to cleaner forms of energy, such as natural gas and renewables.

Businesses and government departments will be required to install renewable energy technologies in new buildings, while industrial and rural sectors will be encouraged to make wider use of waste material, ranging from coal mine waste to livestock slurry.

(Xinhua News Agency)

This will have a huge impact on Western firms who have outsourced their carbon intensive manufacturing to China. The new green laws go into effect at the start of next year. I wonder what will happen during this time: Will we just see the same capitalist treadmill of production where there will be even more outsourcing to other areas like Vietnam? Of course before we can make predictions, the larger question that must be answered is what will the process be like in terms of acquiring these new technologies? Who will shoulder these costs? If it’s all going to be put on businesses, what will be offered to stop them from fleeing?

The World Bank said improved economic estimates showed there were more poor people around the world than previously thought while also revealing big successes in the fight to overcome extreme poverty.

The new estimates, which reflect improvements in internationally comparable price data, offer a much more accurate picture of the cost of living in developing countries and set a new poverty line of US$1.25 a day. They are based on the results of the 2005 International Comparison Program (ICP), released earlier this year.

The developing world is poorer than we thought but no less successful in the fight against poverty. In China, the number of people living on less than US$1.25 a day in 2005 prices has dropped from 835 million in 1981 to 207 million in 2005. The Bank’s earlier 2004 estimate had 130 million people living in China below US$1 a day based on 1993 PPP. Thus, the new calculations reveal more poor people than assumed earlier, but China’s remarkable success in reducing poverty still stands. source.

After 2 weeks of walking past and admiring a new WWF campaign, I finally remembered to bring my camera.

What I like about it is that it takes three of the biggest energy wasting habits and has developed a simple campaign around this issues (air conditioning, lighting, and water).

This interesting event took place last night in BJ (the last in the current series; series might continue later this year) with 2 speakers: 1 from Tsinghua on the design of the Olympic Park and 1 from Greenlink Kusters on Sustainable landscape design. A few notes follow:

Read the rest of this entry »

The issue of water quality in China is not a new one, and with the well publicized algae blooms in China highlighting the problems on a more frequent basis, many in China are beginning to understand the link between development and water.

As a quick refresher, in taihu last year there was a large algae bloom that chocked off the oxygen from the water.  It killed fish, it was undrinkable, and it was largely a result of industrial chemicals mixing with agricultural runoff in highly concentrated levels.  It was a condition that we saw again in Qingdao 2 weeks ago.

For many, the level of awareness has yet to fully transition.  Sure, farmers can trace their dying crops to highly plluted rivers, and fisherman can tangibly feel reduced fish stocks, but the question remains what connections the average consumer is making to these conditions and their health.

The recent Ecologist article Nitrates and Cancer provides another example of why we should be paying attention:

Chinese scientists are reaching a very different view: that nitrite in drinking water is closely linked with cancer incidence and mortality. Indeed, nitrite pollution may be responsible for up to half of all cancer deaths in developed countries – even when nitrite and nitrate levels are within legal limits.