By Feng Fei & Xu Wei, Research Team on "Adjustment, Transformation and Upgrading of Key Industries", DRC

Research Report No 203, 2009

Environmental industry is a general term for the activities of technology and product development, commercial circulation, resource utilization, information service and engineering contracting designed to control environmental pollution, improve the eco-environment and protect natural resources. The term can be defined in both narrow and broad senses. In the narrow sense, environmental industry mainly refers to the end-of-pipe treatment of environmental issues, including the provision of products and services required for pollution control, emission reduction, pollutant clearance, and waste treatment. In the broad sense, environmental industry refers to the whole process of possible environmental pollution and covers all links from the design, production and use of products to the treatment and recycled use of wastes. It covers not only the clean technologies, products and services that can reduce environmental risks and minimize pollution and resource consumption, but also the activities of resource management, resource exploitation, natural disaster response and ecological protection. This report uses the narrow definition. It covers three areas: the products and technologies for end-of-pipe treatment, the integrated utilization of resources, and the environmental services.

During the 2004~2008 period, the market scale of the global environmental industry rose from US$740billion to US$1,050billion, increasing nearly 6% annually in real term which was far higher than the global economic growth rate.¹ In recent years, the environmental industry has made fast progress in market scale, technological level and environmental product and technology penetration. In particular, when the world is addressing financial crisis and climate change and developing low-carbon economy, the environmental industry has received greater attention from governments in various countries. Since the United Nations Development Program issued a call at the end of 2008 for "green economy" and "green new deal", some countries have taken actions to spur economic recovery and addressing climate change by developing green economy. For example, the European Union will invest 105 billion euro before 2013 to support the development of green economy in the Eurozone, of which 54 billion euro will be used to help member states to enforce EU laws and regulations on environmental protection. It is expected that the environmental industry will usher in a new round of development surge after the financial crisis and that modern environmental technologies will become the industry's decisive weapon for global competition.

A faster development of environmental industry has both immediate and long-term implications to forming a new growth area in the economy, promoting technological innovation and boosting sustainable development capacity. Environmental industry is a typical policy-driven industry. Since China began to implement the 11th five-year plan, energy conservation and environmental protection have gained unprecedented momentum and environmental industry has accordingly scored rapid development. In view of this unique feature, China can use policies to further spur its environmental industry, if the rhythm is properly controlled, so that it can become a new strategic industry with both environmental and economic efficiencies,

I. Status Quo and Opportunities of China's Environmental Industry Development

1. Rapid development

In 2008, China's environmental industry posted a total output value of 790 billion yuan, which was equivalent to 2.5% of the country's GDP, and offered employment to over 3 million people.² Specifically, the sectors of environmental equipment and environmental services respectively netted 70 billion yuan and 60 billion yuan, which were respectively equivalent to 16.1% and 6% of their American counterparts. Although China's environmental industry is still relatively small in scale, its growth has been fast in recent years. During the 2000~2008 period, China's environmental industry saw its output value growing nominally by 21.3% annually on average. By the end of the 11th five-year plan, its total output value is expected to be 1.1 trillion yuan, or 120 billion yuan for environmental equipment, 100 billion yuan for environmental services, 250 billion yuan for clean technologies and products, and 660 billion yuan for integrated resource utilization.

2. Vast room for development

In relation to China's current environmental quality, its environmental improvement and related infrastructure are clearly insufficient. At the end of 2008, only 65% of urban sewage was treated and as many as 194 prefecture cities and 78% of county cities nationwide had no sewage treatment plants. Sewage treatment facilities were close to zero in most townships and villages. Urban garbage is mainly detoxified through landfilling, with less than 20% being incinerated or used as manure. This rate is far lower than in Japan, South Korea and other countries. During the 2009~2015 period, investments used for urban sewage treatment, household garbage detoxification, desulfurization and denitrification facilities are expected to reach 450 billion yuan, 150 billion yuan, 130 billion yuan and 26 billion yuan respectively. In all, investments in the four areas will total 756 billion yuan, or 108 billion yuan a year on average. With the establishment and improvement of environmental infrastructures, the operational scales of the four areas are expected to reach 39 billion yuan, 16 billion yuan, 60 billion yuan and 5 billion yuan respectively by 2015. The total amount will be 120 billion yuan. In addition, during the 2011~2015 period, an additional 43 billion yuan will be spent annually on the ecological restoration of depleted mines and the integrated improvement of the heavy metal-contaminated soil and the polluted soil left by relocated urban enterprises.

II. Main Bottlenecks to China's Environmental Industry Development

1. Weak technological basis and low technological innovation capacity

One, as China has not fully grasped core technologies, it still has to import some key equipment. While it can produce most environmental equipment such as precipitators, desulfurization equipment and sewage treatment equipment, it can even export some electrostatic precipitators and bag precipitators. However, China has not grasped the technologies for the cost-effective treatment of sludge, the treatment of high-density and indecomposable industrial waste water, the control of coal-fired NOx, the monitoring and removal of water bloom, and the improvement of bottom sludge. As a result, China still has to import the control chips for the power sources of electrostatic precipitators, the heat-resistant filters and pulse valves of bag precipitators, the denitrification catalysts, and the high-intensity pollution-resistant garbage filter film. The performance of large desulfurization and denitrification devices and garbage incineration equipment are not so stable.

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¹Source: Based on the data of the EU Statistical Bureau and the U.S. environmental business magazines.

²Source: China Association of Environmental Protection Industry