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China Emerges as Early-stage Investor, Not Just Manufacturer, of Cleantech

The U.S. is extraordinarily good at nurturing entrepreneurship and invention, but not as good at building industries around those inventions. Case in point: While America leads in venture capital investments in clean energy, it has ceded leadership in manufacturing and deployment to European and Asian countries.

Given the powerful impact globalization has had on moving manufacturing of consumer electronics, steel and automobiles out of the U.S., the dominance of Asian countries in clean-energy manufacturing isn’t a big surprise.

But now, according to new figures from Lux Research, America is starting to see competition from China with its core strengths in venture investments and entrepreneurship. In 2010, China’s venture capital investments – many of which are in cleantech-related industries like LED lighting, solar cells and batteries – rose to $5.4 billion. That’s almost an 80% jump over 2009:

“Foreign investors look for breakout technological innovations. Domestic investors do as well, but they also factor in market channels and financials when selecting companies,” said Zhuo Zhang, a Lux Analyst and the report’s lead author. “And locals are getting in earlier: Series A rounds represent over 80% of all domestic VC-backed deals, while foreign VCs have backed less than half that many. This implies that many untapped opportunities await foreign investors willing to step beyond familiar territory.”

America is still the dominant player in venture investments, representing $21.8 billion in 2010. When comparing cleantech specifically, the U.S. invested $4.9 billion while China came in second place with $479 million.

While the U.S. is clearly still a leader in this area, Chinese growth rates in R&D have far outpaced any other country. According to Lux Research, China’s R&D spending has increased by 20%, while Europe and the U.S. have seen growth rates of 5% and 6%.

This means that businesses in America are increasingly looking to China for partnerships in order to attract more early-stage financing. A recent story in SolveClimate News quoting Peter Corne of the international law firm Dorsey and Whitney, summed up the situation for a growing number of companies:

“It is not so easy to get funding anymore in the U.S.,” he said. “There is a lot more funding available in China at the moment.”

He added that collaborating with Chinese companies is ideal for early- to mid-stage cleantech firms whose technology does not already have competition in the overseas market.

“The key is to get production to a level [at which] the pricing point is commercially viable,” he said.

On Friday, the House passed an Energy and Water Appropriations bill that would cut the Department of Energy’s budget by $2.5 billion and under-fund the Advanced Research Projects Agency-Energy – an agency designed to help scale innovative energy technologies – by about $1 billion.

This article was originally published by Climate Progress and was reprinted with permission.

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