Chinese pollution powers up demand for green technology

China recently overtook the United States as the world’s biggest carbon polluter, but in a nation known for its dirty technology, a surprising business trend is emerging - green entrepreneurs.

As China booms, the country has relied heavily on coal and other fossil fuels to push its economy into a whole different league.

Rising energy demand has led to an increase in coal consumption, skyrocketing 75 percent from 2000 to 2005 and reaching 2.6 billion tons in 2006, according to the U.S. Energy Information Administration.

The country has become notorious for smog and pollution, partly because of the spotlight shining on Beijing as the world gears up for the 2008 Summer Olympics next month.

Increased energy consumption has pulled nearly 400 million Chinese citizens out of dire poverty, according to World Bank estimates but has led to widespread health problems and a resulting loss in gross domestic product - as much as 5.8 percent.

While China’s thirst for fossil fuels has risen sharply in the past decade, so have investments in clean technology in the country. Venture capital investments in green industry increased by 147 percent from $170 million in 2005 to $420 million in 2006 and totaled $10 billion last year, according to investment consortium Cleantech Group.

Growing demand for clean technology and concern over the environmental effects of pollution have prepared the way for a growing number of small, sustainable businesses.

However, despite burgeoning investments in green technology, many of these entrepreneurs are having difficulty funding their projects.

Lending practices in the country represent one challenge for small- and medium-sized enterprises, said Ye Weijia, director of New Ventures China, a program sponsored by the World Resources Institute to promote sustainable growth.

“The banking system is very discriminative to SMEs [small and medium enterprises],” Mr. Ye said at an event held by the Woodrow Wilson International Center for Scholars. “In developing countries, if the market interest rate is 8 percent for bank loans - when they lend to SMEs, the interest rate becomes 11 percent.”

Banks often charge SMEs higher interest rates because investing in small business frequently implies greater risk.

The Chinese government recently implemented policies to encourage environmental improvements, which have helped rally green businesses. These include new building codes and an energy conservation law, which has real repercussions for provincial government leaders who fail to get their areas up to snuff in the timelines specified by the law.

However, policy support does not necessarily translate into business success, which means lenders still discriminate based on size, Mr. Ye said.

“Policy support versus market economy is still a very important fact,” Mr. Ye said. “Because if a business is supported by policy instead of the market, today you have the policy support, but what about tomorrow?”

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