Green thinking in China: new environmental protection efforts in China could be a boon to Canadian businesses.

China's State Environmental Protection Administration (SEPA) announced recently that it has developed a framework for calculating "Green GDP," and that it will begin trial measures of the new index, to be used alongside traditional measures of national output.

Details of the Green GDP index are unclear but the intention is to capture in the national accounts both the value of increased output, as well as the cost of environmental degradation and resource depletion. A senior official of SEPA has candidly described China's growth experience of recent decades as "featuring high-energy consumption, low efficiency, and high discharges of wastes (which) has incurred an astonishing consumption of resources and discharge of pollutants ..."

The plan is to set up working committees on the measurement of environmental costs in provinces and cities by January 2005 and to have an evaluation of the pilot measurement system by mid-2006. SEPA hopes that these new measurement systems will lead to changes in the way government officials and enterprise managers make decisions about investment projects throughout China.

The Green GDP index is a long way from being widely accepted as a measure of China's well being, but the seriousness with which SEPA has embarked on this quest is an important signal of shifting priorities in the Chinese government. Chinese officials today are open in discussing environmental problems in the country and are actively seeking solutions from around the world. Some of this new-found environmentalism comes from the desire to clean up Beijing in time for the 2008 Olympics, but there is also a sober realization of the damage to lives and livelihoods caused by breakneck industrial growth and infrastructure development. Air pollution, water shortages, and desertification of arable land are just some of the major problems that China will face in the years ahead.

It is no surprise therefore that the environmental protection industry in China has been expanding rapidly in recent years. According to SEPA, total investment in environmental protection as a share of GDP rose from 0.5% in 1998 to 1.4% in 2003. The total number of research and development projects conducted in environmental protection during 2003 was up more than five-fold from 1998.

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The environmental protection industry in China is generally less advanced than foreign firms in terms of technology and management expertise to deal with problems such as waste-water treatment, solid waste disposal, air pollution, and the preservation of clean drinking water. The opportunities for Canadian companies are therefore abundant, and while the China market can be a difficult one to crack, there are already a number of recent success stories to point to.

For example, Group Laperriere & Verreault Inc. is supplying filter presses to an iron ore mine in the province of Shanxi in China. Trojan Technologies Inc., an Ontario-based firm, has landed a contract to install its ultraviolet water treatment system in Hangzhou, China. Vancouver-based International Bio-Recovery Corporation (IBR), specializing in environmental biotechnology, has sold $1 million of equipment to a Shanghai-based client. And Zenon Environmental Inc. of Oakville has secured contracts to supply wastewater treatment technology for industrial applications in Beijing and Datong valued at more than $6 million.

Environmental opportunities in China extend well beyond mitigation and remediation. Municipal governments and enterprises are also paying more attention to the beautification of public spaces. Hanfeng Evergreen Inc. of Toronto, a provider of integrated services to the urban greenery industry, is providing Mudanjiang city in Heilongjiang province with landscaping services worth $11.4 million. Hanfeng is also supplying landscape construction and supplies for Chaoyang Park in Beijing--venue for the 2008 Olympics' beach volleyball competition--worth as much as $50 million over three years.

Canadian companies that are not strictly in the environmental sector have also benefited. Nortel, for example, helped develop information systems to assist the province of Anhui to improve its capability in water resources management and to establish an advanced flood monitoring system along the upper and middle reaches of Huai River.

Canada is often top of mind when Chinese enterprise managers and officials think about sourcing international expertise to deal with environmental problems. This favourable image has been cultivated through many exchanges at the government level, exposing Chinese officials to the depth and breadth of Canadian environmental expertise. Senior Chinese officials have attended the GLOBE series of exhibitions showcasing Canadian environmental business since 1990. Canada has also for many years provided advice to top officials on the development of sound environment policy through the CIDA-funded China Council for International Cooperation on Environment and Development. And recently, the Canadian Minister of Labour and Housing signed a memorandum of understanding with the Chinese Minister of Construction on bilateral cooperation in housing, including energy efficient building technologies.

As China experiments with "Green GDP" and other ways of measuring the cost of environmental degradation, it will seek expertise in a growing number of environment-related areas. Canadian firms should be ready.

Reprinted from Asia Pacific Bulletin, a weekly commentary produced by the Asia Pacific Foundation of Canada, an independent think-tank on Canada's relations with Asia. Other copies of Asia Pacific Bulletin can be found at http://www.asiapacificbusiness.ca/apbn/bulletin.cfm.