China takes small but firm step towards blue skies

China’s infamous air pollution came under the spotlight this weekend in Beijing as Party leaders came together for the fifth plenary session of the National People’s Congress. This meeting was one in a series of meetings that lead to the 19th National Congress in Autumn 2017 where the future direction of China is presented.

Government Work Report and 3 million domestic boilers

Normally the annual Work Report focuses on manufacturing output, employment rates and GDP growth however this year saw a firm inclusion for balancing environmental protection.

Just like London’s smog in the 1950’s which was caused domestic coal fires (and the Chinese still like to refer to London as the Foggy City) until centralised power generation and direct legislation ‘cleaned’ the air, China is facing its own tipping point in domestic consumption.

The next 12 months will see 3 million households move from coal fired domestic heating to natural gas. In addition, all small coal-fired furnaces in cities will be shut down. On the basis there are c.456 million households in China, this represents a small (0.6%) step but at least it is in the right direction.

What is interesting is that there are very few Chinese combi-boiler manufacturers and retailers in China. This means that established Western firms can find ways to enter the market by partnering with Chinese companies to share technology and open up new markets. We are also seeing new innovators in domestic heat and power generation such as micro-turbines, enabling Chinese manufacturers to leap-frog the mature Western markets.

How will this change the 15th November heating switch-on?

Every year in Northern China the ‘State’ switches on heating supplies to domestic residences. This ritual symbolises the power of the State to ‘care’ for its people but also comes at the cost of horrendous pollution. It will be interesting to see over the coming years as more and more residences adopt natural gas heating whether the State will still restrict access to heating to set times in the year. The shift in the individual’s ability to control their environment could also have a cultural impact as 60 years of centralised control slowly erodes.

Business development opportunities

Aside from the domestic gas boilers, there remains a high demand for increasing efficiency of commercial heating systems located in major cities. We have already spoken to one UK innovator that has been successful in China by retro-fitting existing oil fired furnaces to help them meet the most stringent of emissions. Given the scale of the problem, there are many similar opportunities for UK firms to enter China and all they need are the right introductions to property management firms. Now that the National Congress are setting high profile targets for cleaner air, UK firms can place strategic effort in building their China presence knowing that it will take another 10-20 years to resolve.