Back in 2007, I visited Tsinghua University, China’s equivalent of Caltech or MIT, to do a story on the country’s surge in computer research.
But, weirdly enough, the one topic that kept coming up was DVD players, those garden variety appliances that you could buy at Target for $29.95.
China made the vast majority of the world’s DVD players, Zhisheng Niu, vice dean of the school of information sciences at Tsinghua, explained. However, Western and Japanese companies owned the intellectual property. Intense competition meant that many Chinese companies sold their players at or below cost, or just dodged the legal niceties through piracy. The DVD Forum, meanwhile, raked in substantial royalties.
The situation even had a name: the “DVD Mistake.”
"We have to develop our own standards so that we can have our own industry," said Niu. "We have a big DVD industry, but we are probably losing money. The market is big enough so that we can have our own industry."
The same thing appears to be happening in energy.
The Chinese government has pursued a policy for the last few years that tries to limit the portion of a project that can be attributed to intellectual property or proprietary technology, said Ken DeWoskin, chairman of the China Research and Insight Center and a senior advisor to Deloitte, during a session at the Scaling Green Finance conference that took place in San Francisco this week sponsored by the Asia Society.
“There is an IP strategy to lower the technology costs to a smaller and smaller portion in relationship to the manufacturing costs,” he said.
Julio Friedmann, the carbon management program leader at Lawrence Livermore National Labs, added that Chinese enterprises have a deep seated aversion to IP. Western firms that try to hold too tightly to IP can be shut out of deals, Friedmann added.
“We shouldn’t get wrapped around that axle,” he said. “IP is a red herring. Most of the time these are large capital projects. These are multi-billion dollar efforts.”
The mindset, potentially, can serve as a guide for Western firms. Some companies such as Innovalight have actually been able to license intellectual property to Chinese companies. Innovalight sells its silicon ink to JA Solar and Yingli while 1366 Technologies is dealing with Solarfun, a Chinese company owned now by South Koreans.
But if Friedmann, DeWoskin and Niu are right, these sorts of deals may not happen a lot.
Friedmann’s emphasis on the capital-intensive nature of energy projects also highlights (again) that the big winners in the new energy economy could be the green giants: the companies that make up the Utility-Industrial Complex (Bechtel, Lockheed, Boeing) and can bring mega-project management experience to the table, or the Four Horsemen of the Smart Grid (GE, Siemens, Schneider, ABB), or the Computer Club (IBM, Cisco, Panasonic, Samsung).
Other interesting tidbits form DeWoskin, a leading expert on China:
--China has begun to re-acquire coal mines and steel mills. A few years ago, the government privatized coal mines. Over time, however, this had the effect of pushing up the price of coal, which hurt the state-owned utilities and threatened to raise the price of electricity in the country.
To ease that pressure, the government --- through both soft (buy-backs) and hard (threats) forms of persuasion -- began to get these assets back. Of course, this means that the government is in a position where it has to either subsidize its coal mines to placate its utilities or placate the coal mines by subsidizing the utilities.
This conflict underscores that the effort to plant renewables in the country and the push to become more energy efficient are both very real.
--The Chinese government is also wrestling with how to regulate the “princelings,” successful private equity firms in the country, and state-owned enterprises with overseas offices. The government might place strict regulations on accounting and practices, but it’s tough to keep track of far-flung operations in Africa.
--They don’t debate climate change in The Middle Kingdom. “You don’t hear people in China standing up and saying ‘Climate change is a hoax,’” he said, adding that leaders in the country also don’t wield “pseudo-science” on the subject.
--Shi Dinghuan, a spokesman for renewable energy from the Ministry of Science and Technology for the Chinese government, also attended the meeting. By 2020, China wants to have 150 to 200 gigawatts' worth of wind and 20 to 50 gigawatts' worth of solar.