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Green Investors in China Want One Thing: Consistency

September 5, 2019, 1:51 AM UTC

China’s government will have to show more policy consistency if it wants to strengthen its appeal and attract further international green investment, even as the country’s renewable market matures, according to a leading investment executive.

“China is getting tremendous flows of funds, but not that much of it is coming from multinationals,” Christopher Huang, managing director at Morgan Stanley, speaking at Fortune’s Global Sustainability Forum in Yunnan, China on Wednesday. “They want to know that China’s green policies are clear and permanent and here to stay.”

Not just policy shifts, but protectionism and changing political winds have slowed the once robust pace of Chinese companies seeking assets overseas, and Western firms looking to pour funds into China, Huang said.

The result is that overseas investments by Chinese firms have “cooled” since 2016, partly because of capital controls. But he added that protectionism in Western countries, too, has played a part.

“It’s become harder [for Chinese companies] to do deals because the industries Chinese companies are interested in are strategic,” for other countries, Huang said. That has led to foreign governments sometimes stepping in and nixing deals, he said.

But for the green investor, there are still great opportunities, particularly in battery storage.

“Energy storage is what I’m most excited about from an investor’s standpoint,’’ said Priscilla Lu, Managing Director of Sustainable Investment Alternatives at DWS asset management. “China hasn’t used much energy storage so far, because the grid consumes much of its energy. But as renewable energy is more mainstreamed, batteries will take a more central role in investment.”

One multinational that has been increasing its green investment in China, however, is Apple. Lu said DWS is facilitating a $300 million fund for Apple to invest in green businesses across China. U.S. firms are very focused on declaring they are green, she said, and the fund was created to invest in Apple’s manufacturing suppliers in China.

“One positive result is that it is really creating accountability among suppliers,’’ Lu said.

Funds such as Apple’s are meant to underwrite construction, transform business practices and increase accountability. Lu said, however, that renewable energy is maturing to the point that returns on capital are stable enough that they could be the basis of different types of investment vehicles. Managers could create funds by aggregating renewable energy plants or systems, similar to REITs in real estate. Stable returns hold great appeal for many investors.

Whether its batteries or renewable energy funds, green industry’s rise is powering the current of investment connecting China and the West.

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—Dow CEO Jim Fitterling has a counter-argument to the plastic backlash
—Former Sinopec chairman says Chinese executives think climate change can wait
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