Introduction to Foreign Investment in Environmental Protection

Implementing BOT (Build-Operate-Transfer) projects to introduce foreign investment to the infrastructure was advanced during the Eighth Five-Year Plan period. The Chinese government attached importance and supported BOT projects while taking transportation infrastructure projects as the experimental unit.

BOT suggests private partners or the international syndicate will finance and construct the infrastructure after obtaining a projects construction license from the government. Infrastructure operations will continue until the investments, along with reasonable profits, are retrieved. The project will then be transfered to the owner (the government) at no charge.

Essentially, BOT projects are public projects financed and constructed by private organizations with a government warranty. BOTs fit into the developmental guidance of the environmental protection of the governmental policy and are related to the idea of the collective treatment of pollution.

At the same time, this industry has a bright market prospect in China that is fairly appealing to foreign investors. Therefore, BOTs have a wide developmental future in the area of environmental infrastructure construction. In recent years, there have been good attempts in some regions to launch some successful cases that pioneered an important method for financing and constructing environmental protection projects.

In addition, with the upsurge of protecting the environment since the Eighth Five-Year Plan, international financial organization loans and foreign governments began to incline towards environmental protection projects. During the Ninth Five-Year Plan (1995-2000), the utilization of foreign investment in environmental protection grew rapidly, which mostly came from international financial organization loans and foreign governments.

Until the end of 2000, about US$8 billion has been used, which accounted for 10 percent of total foreign contractual loans from abroad. Foreign investments not only make up for the lack of investment in environmental protection, but also introduce advanced technological facilities and managerial experiences and train a number of capable people while promoting the gradual establishment of an environmental protection mechanism.

Loans associated with domestic capital have financed many environment projects and large-scaled projects in pivotal cities, such as Beijing, Tianjin and Chongqing, involving the treatment of urban sewage, rubbish, air pollution, ecologic construction and protection, industrial environmental protection and clean/reusable energy resources.

Since the task of environmental protection construction is quite difficult during the Tenth Five-Year Plan, with great demands on investment, we should move forward in intensifying the use of foreign investment.

During the Tenth Five-Year Plan, the overall requirements for environmental protection are as follows: sticking to the five-year plan's programming and continuing the active and reasonable use of foreign preferential loans and multilateral and bilateral donations; vigorously attracting foreign direct investment and taking on various means to encourage and direct foreign investment for the environment, shooting for a significant increase of foreign investment; focusing on introducing advanced technologies, key facilities and modern management techniques, making great efforts in using foreign capital and promoting environmental protection to develop in line with the economy.

Along with the gradual establishment of compensating mechanisms, such as the policy of charging for waste output and the introduction of the market mechanism in environmental protection, a good condition for foreign investment has been created. During the Tenth Five-Year Plan, the industry, as a new increasing part of the national economy, will have massive developmental potential and the potential to attract foreign direct investment, as well as the opportunity to be a hot spot for foreigners. Our government will take the following steps to encourage foreign investment in environmental protection.

First of all, it will open up more outlets for foreign investment and relax restrictions while speeding up the amelioration of related regulations and statuses. The Chinese government will encourage foreign investors to direct their funds to ecological environment and environmental protection projects, such as handling urban sewage, rubbish, clean energy resources and environmental protection facilities, providing preferential policies to encourage the above-mentioned activities.

Secondly, it will take measures to widen the channels and methods for foreign investment and direct foreign investment to the environmental protection industry via different means and channels. Apart from the cooperation and co-investing with foreign investments, mergers and acquisitions, project financing and BOTs should also been explored to boost foreign investment during the Tenth Five-Year Plan.

Thirdly, the government will encourage foreign capital to flow towards the construction of the environmental protection industry to stimulate the development of manufacturing of related products and make the industry the new booming part of China's national economy.

[Source: State Environmental Protection Administration]