December 3, 2007 (Reuters) – Foreign funds are lining up to invest in China as the country promotes cleaner energy and environmental issues, but investors say the state should step back from the market to allow entrepreneurs room to operate.
“In the last few years we have dramatically accelerated the deal sizes and went exclusively into the clean tech sector,” Christoph Loeslein of London Asia Capital, told Reuters on the sidelines of an energy conference.
London Asia Capital has invested about $200 million in China and is now looking solely at opportunities in the clean technology sector in the mainland.
China’s fast growing economy has been fuelled mostly by burning its huge supplies of dirty coal, but the deterioration of the environment has sparked social unrest, prompting Beijing to set ambitious goals for improving the environment and energy use.
Cleantech Group, the host of the energy conference, reckons the many environmental challenges that China is facing will help it attract more investment.
The group estimates China will attract $700 million in venture capital funding for clean technologies in 2008, rising rapidly to $2 billion by 2010.
However, China still needs to embrace regulations and incentives that nurture entrepreneurs and new technologies, investors said.
“You have to have innovation,” said Gary Rieschel, founder of Qiming Venture Partners, an early stage investor whose funds come mostly from the United States.
Shanghai-based Qiming has already closed a $200 million fund and is looking to close a second $300 million fund early next year, which is expected to have up to 10 percent earmarked for clean technologies.
Rieschel said China needed to allow more foreign competition in its highly regulated energy sector to encourage innovation and new technologies.
London Asia Capital’s Loeslein agreed Beijing’s moves to prevent Chinese companies from listing on foreign exchanges hindered their development.
“Those are restrictions on Chinese ” Loeslein said. “China is awash in capital … the bottleneck is technology and technology transfer,” he said.
Loeslein’s company is also looking to back foreign companies that are interested in investing in China and help bring outside technology into the mainland.
Beijing is also looking to bolster efficiency with a landmark energy law, which could be approved this year and sets out rules for foreign investment and strategic stockpiles, and lay the framework for an energy ministry.