The Potential of China`s Green and Bio Industries

The Potential of China’s Green and Bio
Industries and Korea’s Strategy
December 03, 2010
LEE Sung-Ho, Research Fellow
I. Remarkable Advancement in New Cash Cow Industries
In 2006, China changed its industry development strategy, stressing “Independent Creation.”
Since then, it has increased investment in emerging industries amid the global financial crisis
which crippled the world.
Three Stages of China’s Economic Development
▷ “The Factory of the World” (1978-1984): Exported light industrial products leveraging low
manufacturing costs since opening
▷ “From Market to Technology” (1985-2005): Demanded foreign companies entering China to
transfer state-of-the-art technology
▷ “Independent Creation” (2006- ): Pursued independent innovation through R & D and
expansion of value chains across the board
China has emerged as the biggest solar cell and wind turbine manufacturer in the past four
years, with production surging 31 and 27 times respectively. The production of solar cells
jumped from 142MW in 2005 to 4,382 MW in 2009, while that of wind turbines rose from
507MW in 2005 to 13,803MW in 2009. China has created a virtuous cycle of cost innovation
in emerging industries based on a large pool of human resources, a huge market, related
industries and infrastructure. As a result, it has come to have world-class green and bioindustries.
Table 1. Comparison of Industry Atmosphere between Korea and China
(1,000 persons/ billion dollars)
Competitive Advantages
Production
factor
Market
demand
Industry
Structure
Indicators
Korea
China
Korea’s Proportion
Research
personnel
Total R&D personnel
(2008)
294
1,965
6.7
Domestic
market
Consumption
Expenditure (2008)
652
2,255
3.5
Foreign
market
Export (2008)
422
1,431
3.4
Related
industries
Industries with a
competitive advantage
IT and
heavychemical
Infrastructure
Fixed investment (2008)
273
Across the board including
IT, aerospace, bio, heavychemical and light industries
1,822
6.7
Source: World Bank, GDI.; IMD, World Competitiveness Online.; NSF, S&E Statistics.
II. China’s Competitiveness and Korea’s Countermeasures
In this report, four cash-cow industries, namely the wind and solar power, electric car, and
bio-medical industries were analyzed. For Korea to excel China, changes in the key products
of these industries were identified and future technologies and convergence suggested.
Figure 1. China’s Competitiveness and Korea’s Strategy in Green and Bio- Industries
1. Wind Power
Having the world’s largest domestic market, China’s wind power industry is showing rapid
growth. Consequently, China is the world’s biggest wind turbine producer (32% of market
share), raising the status of its turbine industry. Three Chinese companies (Sinovel third,
Goldwind fifth, Dongfang seventh) are included among the world’s top 10.
Figure 2. 2004-2008 Market Share of China’s New Wind Power Generators
Source: Financial Information Advisory Corporation Beijing (2009). “2009 development of the wind
power industry in China.”; Li, J., Shi, P. & Gao, H. (2010). China wind power outlook 2010. Chinese
Renewable Energy Industries Association
China has the capability of mass-production based on its technology to manufacture 1.52.0MW turbines, which account for most of the land-based wind turbines, and domestication
of at least 70% of the parts. The world’s second biggest gearbox producer (as of 2009),
Nanjing High Speed Gear Manufacturing, produces gearboxes with its own technology and
supplies them to GE.
The strategy is to secure competitiveness in a short period of time by encouraging stateowned companies to develop technologies and harness the domestic market. Turbine
manufacturers who lacked technological ability earned competitiveness soon after
cooperating with advanced companies. Now, having acquired a competitive edge leveraging
the huge domestic market, China wants to move into the foreign market.
Table 2. Product Development of Major Turbine Producers
Producers
Key Models
Method of R&D
Models under R&D
1.65MW, 3MW
Joint development with Fuhrland,
Joint venture with Windtec, and possession of
independent production right
Goldwind
1.5MW
Joint development (acquired Vensys)
2.5MW, 3MW, 5MW
Dongfang
1.5MW
License agreement with REpower,
Joint venture with Windtec
2.5MW, 3.6MW,
1.5MW,
Sinovel
3MW, 5MW or
above
5MW (offshore)
Source: Qui, G. Gong, J. & Sun, X. (2010). "Rapidly growing China’s new energy industries" (Issue
Report 10-1). SERI Beijing Office.; Li, J., Shi, P. & Gao, H. (2010). China wind power outlook 2010.
Chinese Renewable Energy Industries Association.
Korea can make differentiation from China by building super-sized turbines and cooperating
with wind power companies, linking the business with other systems. Korea entered the wind
power industry on a small scale in the 1990s. Now, large companies in the heavy industry are
seeking ways to expand and make inroads into the foreign markets. China’s current key
model is the 1.5MW land-based wind turbine (operating rate of approx. 25%), and it is
already developing 3-5MW next-generation turbines. Therefore, Korea needs to go one step
further and develop at least 7MW offshore turbines (operation rate of 50%) as well as key
parts and differentiate itself. In preparation for the era of sea wind power, Korea should
widen its business field through close cooperation with global power companies. It can
leverage its competitiveness in shipbuilding, construction and power generation to expand the
field to include construction of turbine installation vessels and farms, operation and
maintenance.
2. Solar Power
China is the biggest solar cell producer in the world, supplying 43.2% (in 2009) of demand.
Four Chinese companies, Suntech Power, Yingli Solar, JA Solar and Trina Solar, are included
in the world’s top 10 solar cell producers and take up 37% of the market share.
Table 3. Rankings of the Top 10 Solar Cell Producers
2006
Ranking
2009
Company Name
Gross Power
Generation (MW)
Company Name
Gross Power
Generation (MW)
1
Sharp (Japan)
434
First Solar (US)
1,113
2
Q-Cells (Germany)
253
Suntech Power (China)
704
3
Kyocera (Japan)
180
Sharp (Japan)
635
4
Suntech Power (China)
158
Q-Cells (Germany)
551
5
Sanyo (Japan)
155
Yingli Solar (China)
525
6
Mitsubishi Electric (Japan)
111
JA Solar (China)
509
7
Motech (Taiwan)
110
Kyocera (Japan)
400
8
Schott Solar (Germany)
96
SolarWorld (Germany)
400
9
Shell Solar (Netherlands)
86
Trina Solar (China)
399
10
BP Solar (US)
86
SunPower (US)
398
Source: “Competition for Solar Cells between Japan, China and Korea” (Aug. 3, 2010).The Economist
Chinese manufacturers are especially strong in the finished products of labor-intensive
crystalline solar cells (solar cells and modules). They are now pushing the boundaries across
the board into parts and materials (polysilicon, ingots and wafers).
The strategy is to enlarge its businesses and secure high quality, cheap labor. The country has
achieved high growth in the already mature crystalline solar cell industry based on low
production costs and large capital investment. It first entered the cell and module fields,
which are the most labor-intensive fields in the crystalline solar cell industry, taking
advantage of the low labor costs. Then, it established a large solar cell production line by
nimbly responding to the enlargement of the solar power generation market in Europe such as
Germany and Spain.
Under the circumstances, it is essential for Korea to secure next-generation technology in
parts. Korea has outstanding abilities in parts and materials, including polysilicon, ingots and
wafers. Now, it has to move into the field of crystalline cell parts and next-generation ultrathin solar cell market ahead of its rivals.
3. Electric Vehicles
China was the world’s first to develop electric cars and commercialize them. BYD began
development in 2003 and succeeded in becoming the first producer of the Plug-in Hybrid
Electric Vehicle (PHEV)1 in 2008, selling it to the public in 2010. By October 2010, 39
companies had developed 110 kinds of electricity-powered vehicles.2
The government’s support and plans to nurture related industries largely contributed to the
result. It encouraged cooperation between industrial, academic and research institutes to
acquire the basic technology for electric cars, and then acquired advanced technology through
partnerships and M&As with major foreign companies. The government has earmarked 100
billion yuan to provide further support for the coming decade. Also, it plans to mandate
foreign companies to participate in joint ventures to produce electric vehicles and parts of
which Chinese companies should own at least 51% of the stakes.
Table 4. Partnerships and M&As between Chinese Car Manufacturers and Foreign Companies
Chinese Companies
Foreign Partners
Areas of Cooperation
BYD
Daimler (Germany)
Finished products and brand
Geely
Volvo (Sweden), Lynx (Denmark)
Finished products and batteries
Chery
Betterplace (Israel)
Batteries and charging infrastructure
Beiqi Foton
CT&T (Korea), SK Energy (Korea)
Finished products and lithium batteries
For Korea, it needs to establish partnerships among the auto, electronics and electric power
industries. Korea is two years behind China in terms of the development and mass production
of electric vehicles. Therefore, it should utilize its competitiveness in the aforementioned
industries to create synergy and develop them into a system industry. Further cooperation
between auto and electronic parts companies should be sought to improve the performance of
Korea-made parts. In addition, expanding the business field by building intelligent cities,
selecting pilot cities and using sophisticated IT technologies including smart grids and
intelligent transportation system, should also be considered.
4. Bio-medical
China’s status in the field has been much raised by ongoing research, government support and
expansion of the market and companies. China ranked fourth in publication of relevant papers
(2008), third in investment in stem cell R&D (2009) and fourth in the pharmaceutical market
(2009). Moreover, it has more listed biomedical companies than Japan (2008).
1
PHEV uses both fossil fuel and electricity.
They are consisted of 62 electric cars and 48 hybrid cars. Meanwhile, Korea has 7 electric cars and
2 hybrid cars of different kinds.
2
Figure 3. Number of Papers, Investment in Stem Cells, Pharmaceutical Market
and Number of Listed Companies of Korea, China and Japan
Source: Ministry of Education, Science and Technology (2008, 2009). “White Paper on Life Science”.;
Japan Biotech industry Association; National Science and Technology Council (2009). “Plans to
Encourage Stem Cell Research.”
China secured researchers and infrastructure; commercialized innovative medicine; and
nurtured markets and companies. In particular, the country focused on traditional Chinese
medicine and sophisticated bio-medical fields such as stem cell and gene therapy. China
rapidly developed pharmaceuticals by taking advantage of the cheap and less-regulated
clinical market, and achieved success in commercializing and exporting products and drug
pipelines. The government has nurtured the pharmaceutical market and companies through
medical reforms, and specialized companies according to field (traditional Chinese medicine,
generic drugs, and biomedicines).
Table 5. China’s Export of Drug Pipeline after 2005
Development
Importer
Pipeline
Effective for
Academy of Military
Medical Sciences
PhytoPharm (UK)
NJS (chemical medicine)
Dementia
Chipscreen
Biosciences
HUYA BioScience (US)
HBI 8000 (chemical
medicine)
Cancer
Chinese Academy
Sciences
DeBio Pharma
(Switzerland)
ZT-1 (chemical medicine)
Alzheimer
Changchun Huapu
Biotechnology
SBI Biotech (Japan)
Gene medicine
(biomedicine)
Immunization
Source: Homepages of Phytopharm, Huya BioScience, DeBio Pharma and SBI Biotech
Korea needs to secure outstanding talent and R&D networks, connecting researchers for
cooperative research. It should build a network for research where internationally renowned
scientists take the lead, and develop medicine of prevalent diseases ahead of others. Also,
Korea should connect researchers to leverage the capabilities of Korean hospitals in clinical
research to improve the speed and effectiveness of developing new medicine.
III. Suggestions
Korea needs to seek value innovation, creating new demand through creative R&D and
convergence in the transitional era of technology. Creative R&D should be pursued with the
focus on concept and technology of the next generation to compete with China which has
many talented engineers and researchers. Systems and solutions should be developed,
converging Korea’s key industries in response to China’s mass-production of single items
based on the economies of scale. Against China’s quantitative advantage, Korea can initiate
pilot projects to test innovative products, leveraging its qualitative advantage such as Korean
customers’ dynamism or voluntary participation.
Figure 4. Korea’s Countermeasures against China