Follow my blog with Bloglovin
BEIJING — China has a lot more to worry about at home than its foreign policy. Some energy-related companies in the country have found themselves caught in a business cycle that shows how difficult it can be for stimulus to help the economy in the form of bank loans.
BEIJING — China has a lot more to worry about at home than its foreign policy. Some energy-related companies in the country have found themselves caught in a business cycle that shows how difficult it can be for stimulus to help the economy in the form of bank loans.
The world’s second-largest economy contracted 6.8% in the first quarter at the height of the coronavirus pandemic. Among many measures to support growth, authorities have repeatedly emphasized how banks need to lend more to smaller, privately run businesses versus state-owned giants.
At the same time, Beijing has increased efforts to develop renewable energy, which can ultimately give China an edge in globally sought-after technology. But the coronavirus has made banks and investors more cautious about putting money into such unproven technologies, and history indicates the challenges run deep for any privately run company that might want to participate in this growth opportunity.
China is the world’s largest consumer of coal, and accounts for nearly half of global investment in renewable energy. When it comes to specific technologies such as waste-to-energy, solar and wind power or hydrogen fuel cells, scientists from the U.S. to Europe speak generally of rapid advancement in Chinese renewables, which has helped drive down costs.
It’s less clear which technology will ultimately gain the scale needed for widespread use. But China is trying as many as possible. The government would like non-fossil fuels to account for at least a fifth of energy in ten years, and aims to increase national security by cutting energy imports.
“China’s installed renewable energy (RE) capacity is the highest in the world, but there are no guidelines for renewables utilisation in the nationwide energy framework, due to lack of planning and a largely rigid overall energy system,” Guido D. Giacconi, national chair, energy working group of the European Union Chamber of Commerce in China (EUCCC), said in a statement a few weeks ago.
He pointed out that China’s post-coronavirus infrastructure stimulus plan has been updated to include energy transfer and storage projects.
“Energy transition is no longer just a priority for decarbonisation and climate change,” he said. “It is now a way for China to meet long-term economic, political and technology leadership goals.”
Balancing looser policy with risk limitation
For private companies in China wanting to participate in that development, it's not a guarantee to be in the right industry. That's because of a complex web of interests and underdeveloped risk management systems-and capital transmission.
First, there's a cash flow issue there.
"The (privately owned) POEs still have this refinancing cost(s) disadvantage compared to SOEs," Apple Li, S&P Global Ratings director, said in a phone interview. "Capex is quite high particularly in the utilities sector and the leverage is quite high. It really depends on how companies can obtain financing from the banks and also settle their counterparties' account receivables.
Chinese banks tend to lend to less risky state-owned companies, because they themselves need to make money. Privately run enterprises can be too risky for banks with potentially revolutionary but mostly unproven developments, the majority of which are state-owned. The big Chinese energy firms are state-owned.
Underdeveloped regulation allowed many companies to borrow and grow too rapidly until three years ago, according to Zhu Chunyang, executive director, environmental & public utilities chief analyst at the China Merchants Securities Research and Development Center, the Chinese authorities began tightening leverage restrictions.
0 comments:
Post a Comment