China’s trash is economic treasure

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.”

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