China’s move towards a clean energy economy is long-term, strategic, clearly articulated and very focused. Most importantly, it’s occurring right now and it’s here to stay.

Sitting in an office in Beijing peering out into a never ending grey oblivion, one could be forgiven for having grave misgivings about China’s ability to reach the 40-45 per cent emission reduction targets per unit of GDP by 2020 announced by Wen Jiabao last year.

However, policy announcements, regulations, financial incentives, tax breaks, significant investment in R&D and a growing green economy tell a very different story and it’s important to understand that the Chinese are striving so strongly towards a green future, and what the options are for Australian businesses looking for inspiration, or opportunity.

Changing demographics and rapid growth are having significant environmental and structural consequences in China. Urbanisation and increasing demand for power are putting enormous pressure on the environment. Every week China adds a new coal-fired power station. Water scarcity, as well as water and air pollution are moving to front page news.

The result is that, rather than being driven by international treaty and policy requirements, such as the Kyoto Protocol, or by international pressure to take action on climate change, China’s environmental initiatives are the consequence of a desire to ensure energy security, social stability, and increased competitiveness.

As with most things in this country, China’s response has been rapid, comprehensive, and utilises a carefully structured long-term plan to shift from a high to low carbon growth path.

The policy measures it is implementing are part of the fabric of China’s economic development, and fit neatly across a number of strategies: boosting domestic consumption to decrease overreliance on exports; investing in the development of new hi-tech, environmentally friendly industries to decrease reliance on heavy industry; implementing rolling shutdowns of manufacturers failing to meet environmental standards; and promoting strategically-directed investment and job creation in environmental sectors often located in less developed areas.

Fiscal incentives are also being introduced. For example, preferential feed-in tariffs for renewable power, mandated requirements for power producers with more than 5GW of installed capacity to produce 3 per cent of power from non hydro renewable sources by 2010, and 8 per cent by 2020, tax incentives and a range of innovative financial instruments.

Together, these strategies are rapidly shifting attention towards the adoption of clean energy and energy efficient technology as well as into research and development of new environmental products.

And for those for whom incentive is not enough, the government’s threats of closure are real.

In last-minute attempts to meet their energy efficiency targets, various provincial governments recently implemented rolling shutdowns of the grid – turning off power to villages and towns (including parts of Shanghai). At the same time, the national government endorsed the shutdown of 2000 factories for failing to meet environmental standards.

Scaling up domestic innovation is only part of the solution. According to the UNDP, to reach it’s 40-45 per cent target by 2020 China will need to spend between $30 and $51 billion each year, and deploy 62 technologies. Of these, 43 will need to come from outside China.

And therein lies the opportunity for Australia.

We pride ourselves on our education and research, our technology and our innovation. With a small number of people, we are always proud to say that our big ideas mean we can punch above our weight. Nowhere should this be more obvious than in the green sector – an industry that estimates suggest will be the third largest industrial sector in the world by 2020. So, where are the Australian technology providers?

China and Chinese enterprises are actively looking for green technology options. Not in the obvious places like solar (China produces more than 50 per cent of the worlds solar panels), or in wind (Chinese owned Goldwind is the world’s eighth largest wind turbine supplier), but in much more specific areas such as water, industrial energy efficiency and clean coal.

And it’s not the big companies in the big cities who are in need of solutions. Rather it is the mid tier companies in the mid tier Chinese cities who provide the opportunity for Australian businesses. Given the enormous size of China, this means big opportunities – but also more complex business plans.

Understanding the market, seeing the opportunities, and carefully mapping a strategic path towards them is key to managing the risks and accessing the gold at the end of China’s green rainbow.

The dangers of doing business in China are real. But for those Australian companies in the cleantech sector willing to take the risk, the rewards can be immense.

- Mina Guli is executive director of Peony Capital, based in Beijing.