In China's clouds of pollution, Washington sees a silver lining

September 20, 2005 

  • Looking for somewhere to put your money other than mutual funds?

    How about a landfill in China?

    If you’re interested, Kent Mao is your man.

    Mao is a professional matchmaker who hooks up environmental specialists and venture capitalists in Washington state with the possibilities created by China’s pollution.

    Landfills are hot prospects at the moment, Mao says, because the Chinese government is selling them to foreigners who believe they can make them more efficient and operate them at a profit.

    “Right now, there are no fees for collection, if you can believe it,” he said.

    Mao lives in Edmonds and runs his company, the North American Industrial Investment Group, out of an office on the 42nd floor of Seattle’s Bank of America Building.

    Before he became an industrial entrepreneur, Mao was an industrial engineer. He earned his degree at Colorado State University, worked as an engineer at the Fort Collins, Colo., water department and consulted on Seattle’s aquarium and West Point sewage treatment plant projects.

    He has invested in two coal-fired power plants near the city of Anshan in northern China, where he sells power for heat in the winter and feeds power into the grid in the summer.

    The state-of-the art scrubbers on his facilities’ stacks not only improve the air, they also provide Mao with a by-product – fly ash, which he markets as an additive to make high-strength concrete.

    Mao is convinced such deals present lucrative opportunities to even out America’s trade deficit with China – our know-how in exchange for their money.

    In addition to profit, there’s a feel-good factor, he says. You make the world a cleaner place.

    The deals are difficult to arrange. For example, Mao says buying his power plants took 73 separate negotiation sessions.

    “There are legal issues, labor issues,” he said. “The facilities were previously state-owned enterprises with guarantees to employees. They want to know what will you pay workers? What guarantees will you give them? What benefits?”

    Selling the Chinese government on your proposal is half the battle, Mao said. The other half is knowing what you are actually buying and figuring out whether it will pan out the way you hope.

    Often, unorthodox accounting practices in China make it difficult to tell what’s really going on. “You need to do deep research to determine all the hidden costs,” he said.

    Adding to the financial challenge, he said, is the fact that, when you buy these facilities, you’re also buying debt. “Sometimes,” he said, “70 percent of purchase price is debt and 30 percent is actual assets.”

    The complexity is where the expertise of a dealmaker comes in, he said. It also takes having good contacts in China to give advance intelligence.

    “By the time they change the law,” Mao said, “you are too late.”

    His dealmaking strategy is familiar and typically Chinese, he said: Everybody has to gain in the transaction. His goal is to put together deals in which everyone gets at least some of what they want. Most often, the arrangements involve several parties.

    “One company cannot solve this,” he said. “It needs to be an integrated strategic alliance.”

    Mao’s current venture: He’s trying to sell China on medical waste incineration technology pioneered by a Bellingham firm.

    China has put up an investment of $1.5 billion to help build medical waste incinerators across the country. The problem, Mao said, is that China has specified rotary-kiln technology, which is very costly. He’s trying to persuade them to use the Bellingham technology instead, which he says is cheaper and better.

    The potential payoff has attracted stiff competition from companies in Utah, Texas and France, but Mao said that doesn’t bother him.

    “If you have 10 percent that’s enough,” he said. “The pie is big enough for everyone.”

  • According to Dan Jaffe, we’re not only wearing exports from China, we’re breathing them.

    Studies by the University of Washington researcher show a startling amount of made-in-China pollution rides to America on the jet stream and ends up in our lungs.

    “Just a few years ago, no one dreamed that pollutants could make it thousands of miles from China,” Jaffe said. “Now it’s clear that they do.”

    He and his team of researchers at the UW’s Bothell campus have shown that “Asian puffs” of bad air carry mercury, carbon monoxide, aerosols, hydrocarbons and nitrogen oxides 6,000 miles across the Pacific Ocean, adding significantly to the toxins in our air and water.

    The levels are high enough to pose serious health risks. In a study Jaffe co-authored this year, he calculated 1,460 metric tons of mercury, a powerful neurotoxin, blew out of China last year – twice as much as previously thought.

    Scientists now believe Asia contributes as much as a third of all airborne mercury deposited in the United States.

    Jaffe and his team do some of their sampling on Cheeka Peak, a 1,500-foot promontory on the Makah Indian reservation on the tip of the Olympic Peninsula. The station was established 15 years ago by researchers who assumed it would be an ideal place to establish a baseline of clean air, scrubbed during transit across the Pacific.

    Jaffe discovered that was not the case. Intrigued by studies showing windborne dust from Africa was ending up on other continents, he wondered whether the same might be true for Asia.

    His landmark 1999 study, “Transport of Asian Air Pollution to North America,” opened the eyes of government regulators and scientists around the world. It since has become a standard reference in the field, having been cited more than 160 times in scientific literature.

    In addition to Cheeka Peak, Jaffe’s research team collects samples on top of Mount Bachelor in Oregon and in aircraft flights.

    The flights are proving to be useful, Jaffe said, because it is now clear that the pollutants are transported at altitudes up to five miles.

    Jaffe’s team uses specially designed instruments that capture air and run it through spectrographs and other sophisticated equipment, enabling them to “fingerprint” China’s pollutants and distinguish them from local sources.

    Mercury has garnered the most public attention – and most federal funding – because of its proven health effects.

    Inhaling mercury has harmful effects on the nervous, digestive and respiratory systems, and the kidneys.

    But it’s part of a larger picture, Jaffe said.

    “Mercury, ozone, particulates … They’re all important in different ways,” he said. “The ozone trend is very important.”

    It seems reasonable to assume that most of the pollution would drop at the first landfall on the West Coast, but that is not the case.

    “Every pollutant is different,” Jaffe said.

    A recent cloud of especially bad Chinese air, tracked by research stations throughout the United States, deposited more dust and pollutants on Atlanta and Salt Lake City than it did on the Pacific Northwest.

    “Now we know it’s out there,” Jaffe said, “the question is, ‘So what?’” And, for policymakers, ‘What do we do about it?’”

    Those questions are complicated by the difficulty of assessing health risks. While inhaling mercury is a proven hazard, most of our exposure comes from food, especially some species of fish.

    Whatever the current risk from China’s exported air, it is certain to get worse as China’s new industrial revolution continues. Automobile emissions are a particular concern.

    “Right now, one of every 100 people in China own cars,” Jaffe said. “If that goes to, say, one in every 10 people, that’s 100 million more cars. Several car makers have announced they expect to sell more cars in China than the United States. It’s just phenomenal.”

    China’s heavy use of coal is equally worrisome. Three-quarters of China’s electricity is produced by coal-fired power plants, which spew out tons of mercury and sulfur oxides.

    That is unlikely to change soon. China currently burns about 2 billion tons of coal a year. According to China coal industry representatives, an additional 50 million tons of coal will be needed next year and an additional 500 million tons by 2010 to meet the growth in demand.

    Still, Jaffe said, it is important to keep matters in perspective.

    America is still the world’s worst emitter of carbon dioxide from burning fossil fuel, he notes. About 40 percent of U.S. carbon dioxide emissions come from fossil fuel power plants.

    And, while airborne pollution from China is a serious problem, Jaffe said, “Most of the pollution in Seattle and Tacoma is our pollution.”

    “We can’t go pointing our fingers at other countries,” he said. “They’re not doing anything we didn’t do. They’re basically following our model of development.”

    And, he notes, “America’s pollution makes it to Europe, and this is of concern there.”

A treatment pond at a Chinese chemical factory overflowed this summer, sending a gray wave of toxic sludge down a hillside and into a nearby village. (Photo Gallery | Special Section)

The flood flattened five houses and killed four people, including two children.

The disaster would have been major news most places, but it rated only three lines in China Daily, the country’s national newspaper. The paper didn’t even bother mentioning the village’s name.

Environmental disasters are not unusual in China. The country’s dramatic leap into the 21st century has been accompanied by horrific pollution.

According to the World Bank, China has 16 of the world’s 20 most-polluted cities. Bad air from its industries and coal-fired power plants pollutes the entire planet. An estimated 400,000 Chinese citizens die each year from diseases related to air pollution.

As hundreds of millions of Chinese continue to trade bicycles for cars in the next few years, the situation stands to get far worse.

If there is a bright side, it is this: China’s central government appears highly motivated to clean up its act. That creates a gold-rush opportunity for Washington companies that specialize in environmental technology and conservation systems.

“Washington cannot only sell apples and wines, but it also can sell environmental technology products and services,” says Kent Mao, a Seattle-based businessman who specializes in helping Washington environmental companies do business in China. “I believe this will be the future trend for foreign investment in China.”

Sharpe Mixers, a South Seattle company that makes industrial mixing equipment, discovered China’s booming environmental market 18 months ago, and the company has been transformed by the demand it found.

Sharpe makes industrial mixers of all kinds, from little quarter-horsepower machines for pharmaceutical companies to 300-horsepower behemoths.

The equipment Sharpe makes is ideal for the scrubbers used to clean pollutants out of the exhaust of coal-fired power plants. When China began requiring scrubbers on new plants, Sharpe found itself ideally situated to profit.

The company has provided mixers to 25 coal-fired power plants in China in a little over one year, said Steve Drury, Sharpe’s applications engineering director. Chinese sales now account for 30 to 40 percent of Sharpe’s total sales.

The company employed 19 people in 2003. Now it employs 26.

“It’s just amazing,” Drury said. “When we found out, we were all sitting around like deer in the headlights. At first we were thinking, ‘How can we even manage this?’ We’ve put on a second shift because we had such a huge increase in business.

“Besides the second shift, we have more engineers, more administrative people,” Drury said. “We now are forced to go to outside shops, machine shops. All these wonderful things have happened.”

Makers of niche products, like Sharpe, stand to profit from China’s cleanup. So do some high-tech manufacturers.

Federal and state environmental regulations enacted in the United States over the past 30 years led to the creation of the most advanced pollution control and energy conservation technology in the world.

Those products and processes are now in great demand in China.

“It is a huge market,” said Dipeng Sun, a Shanghai-based business consultant who formerly was the chief financial officer for the China steel giant, Baosteel.

“The Chinese people had clear air and water 100 years ago,” he said. “Now it’s polluted, and they want to improve their life quality.”

America cannot compete with China in manufacturing everyday products like clothes and shoes, Sun said. China’s labor costs are too low.

“Technology,” he said. “This is your opportunity.”

MOtivation for cleanup

China’s environmental problems are obvious.

Clouds of pollution hover over cities like shrouds. The air is so laden with particulates that cars parked outside are quickly covered with a layer of fine soot.

From the top of Shanghai’s 88-story Jin Mao Tower, the tops of high-rise buildings emerging from the polluted gloom look like a scene from a post-apocalypse disaster movie.

China’s central government wants a cleaner environment not only to improve public health but also to preserve its growing tourism industry. The country urgently wants cleaner air in Beijing, the world’s fifth most-polluted city, in time for the 2008 Summer Olympics.

And in Southwest China’s Sichuan Province, where tourism is one of the great economic hopes, two popular attractions are threatened by environmental problems. A 233-foot Buddha, carved into a cliff at Leshan 1,200 years ago, is being eaten away by acid rain. And habitat is disappearing for the province’s beloved giant panda bears.

China is reacting with stricter laws and penalties, plus a major public relations campaign. Parks and public squares in China’s cities are heavily posted with signs urging water conservation and responsible waste disposal.

In some cases, the government is providing large subsidies to see that the job gets done. For example, it recently established a $1.5 billion fund to help build 330 medical-waste incinerators across China.

“What got their attention on medical waste was SARS,” Mao said of the respiratory epidemic that killed hundreds of people in Asia two years ago.

“Cotton waste from hospitals was being recycled into products that were still contaminated,” he said. “Now, people at the highest levels are motivated.”

Opportunity won’t last

Washington’s environmental firms give the state an opportunity to help swing back the trade balance skewed by manufacturing, Sun said recently in an interview in Shanghai. Opportunities exist not only in environmental cleanup, he said, but also in other aspects of creating a greener China.

Sun noted that one of the most critical of China’s industrial needs is maintaining an adequate supply of electrical power. According to the country’s environmental protection administration, 26 of 31 provinces endured brownouts from power shortages last year.

When demand spikes, factories sometimes must slow production. This is counterproductive, Sun said.

Instead, building’s efficiency should be improved through better design and materials. American firms are the experts in these conservation techniques, he noted.

“China consumes huge amounts of energy,” he said. “How to save the energy, this technology, these materials, this management, can show us how to save 20 percent, 30 percent, even 50 percent.

“It’s not only technology, but also management. This is a system.”

The Weyerhaeuser Co. already is providing expertise to help China establish a sustainable forest industry, according to the company’s China manager, Renren Zhang. Last year Weyerhaeuser cooperated with the central government to sponsor a lecture series on soil and water management and sustained forestry practices.

China’s strategies for dealing with its environmental problems include privatizing state-run power generation plants, landfills and sewage treatment systems. (Nearly one-third of nonindustrial sewage in China’s cities went untreated last year, according to China’s environmental protection administration.)

The government sells the operations, usually antiquated and inefficient, to foreign investors who believe they can clean them up and operate them at a profit.

Mao has put together successful partnerships that have taken over two coal-fired power plants in China. Now the Seattle businessman has his eye on the $1.5 billion medical waste fund with a partnership that uses a Bellingham company’s incineration technology.

Some highly specialized environmental companies are afraid to participate in the China market for fear their technology will be ripped off, Mao said.

Others, like Sharpe Mixers, which make less technical products, want to make hay while the sun shines.

The good fortune will not last forever, Drury said.

“The type of equipment we make is not rocket science,” he said. “Anyone with any common sense can make a mixer. Basically, all you do is put a paddle on a shaft and turn it fast.

“The Chinese are brilliant people, hardworking as heck and there’s millions of them,” he said. “I’m sure there are some trying, as we speak, to duplicate what we do.”

“Our attitude is, we might as well take advantage of it for as long as it lasts.”

Rob Carson: 253-597-8693

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