Is China a market? A partner? A competitor? Yes. Yes. And yes.

Jim Mahoney — Fri, 06 Jun 2014 14:29:07 +0000

Daily media reports on China are laden with coverage on both 1) massive resource-intensive industries and their devastating pollution footprints causing health scares, environmental protests, and economic constraints, and 2) debate on whether China will (or will not) be able to rejig the economic model onto a more sustainable footing amid escalating urbanization, demographic and social pressures. Whether you are bullish on China’s economic and environmental future, bearish, or just confused, you will have no shortage of data, headlines, and “expert” tweets to cite in arguing your views.

The information onslaught is luring ever more cleantech companies from around the globe to China seeking business in what is a staggering and decades long clean-up and economic advancement effort.

At Kachan, we are addressing many more China ‘macro’ questions as international firms increasingly weigh cleantech opportunities against growing economic uncertainty: Is China’s economy already bigger than America’s? Will China keep humming along or stumble under debilitating housing or debt crises? Is China winning or losing the clean energy race?

China’s medium and long-term outlook has its place in corporate planning. The crucial take-away for cleantech firms though is more straightforward—regardless of how sharply China’s economy continues to slow and ebb, the world’s 2nd largest economy continues growing in absolute terms and the requirements to feed that growth more productively (both in economic and environmental terms) will only intensify for many years.

Two corollary messages are also key. China is actively seeking useful western cleantech knowhow; so yes, great opportunity abounds. Secondly, central policy clearly strives to develop Chinese companies and industries as leaders in clean and green technologies and services—both for deployment, jobs and higher-value industry at home, and also to be able to compete globally. Successfully selling and collaborating in China comes hand-in-hand with effectively maintaining control of the core value you are bringing to China.

China Leading in ‘clean’ and ‘dirty’
China continues investing more into clean energy manufacturing and deployment than any other country; in 2013, China’s investment into clean energy deployment outstripped all of Europe’s. National government bodies regularly announce world-leading sustainability targets plus an extensive array of policies and spending to help achieve them. At the same time, China maintains annual global leadership in coal consumption, cement and steel production and the consequential pollution and waste trails damaging air, water and soil.

Top countries with new investment in clean energy (2013). Source: Bloomberg New Energy Finance. (Note: Total values include estimates for undisclosed deals. *Corporate & government R&D is not available for South Africa, but is included in the other countries.)

So, should China be lauded for impressive targets to reduce the fossil fuel component in the energy mix, or be accountable as a top ‘dirty’ resources guzzler and polluter? Is China a leader in sustainability by driving solar and wind costs down and benefitting all, or is its cleaner energy juggernaut simply a zero-sum mercantilist dagger forged from unfair state subsidy designed for domestic job creation, intellectual property transfer, and below-cost product dumping? Canadian Cleantech firms looking abroad can investigate both sides of these debates for capturing opportunities in China—identifying problems they can solve and/or capitalizing on investment incentives and commercialization advantages through collaborative tie-ups.

‘Brand Canada’ is a good start
Canada is focused on growing exports partly by ‘touting its own horn’ more effectively. Canadian cleantech is gaining recognition for punching above its weight in research and innovation investment into technologies with global applications, and for creating jobs in high-value segments. Marc McArthur, who heads Ottawa-based cleantech advisory Crosstaff Solutions, believes that effectively promoting these trends empowers cleantech providers with a compelling sales message to take abroad. McArthur stresses that “not surprisingly Canadian sustainable technology strengths relate very much to Canadian strengths overall—bioenergy, biomaterials and other bio-sectors, as biomass and our boreal forest link one end of Canada to the other in one continuous narrative of industry, history and expertise, as well as water, and oil & gas—again for reasons that are obvious when you look at Canada's make-up as a country.”

Canada‘s main limiting factors for cleantech deployment are a relatively small size as a marketplace and inadequate access to growth funding. McArthur advocates building capacity within Canada’s SME's to step up to the challenge of addressing global markets because “the problems that sustainable technology companies solve are felt the most in other parts of the world that are not blessed with as many resources per capita.”

China’s impressive sustainability goals, host of markets, and growing resolve for cleaner and more efficient growth make the country well worth a look, be it to grow exports, license technology, or find investors or manufacturing and channel partners. If you have something special that impressively solves efficiency and waste problems, Chinese parties will want to learn about you. To get noticed above the crowd—the growing line-up of organizations (both foreign and domestic) that are also knocking on the same doors in China—Canadians will benefit by delivering a more impressive ‘Canadian knowhow’ message and also by understanding and effectively navigating the interplay of markets-partnerships-competitors.

China markets are many, but not for everyone
The world’s largest user of energy and of major commodities from coal to copper and rice to soybeans, the largest producer of cement, steel, rare earth elements, pork, and history’s largest urbanization build-out is guzzling energy and water, and polluting too much. China has heaps of market opportunities right across the cleantech spectrum, including energy, air, resource use, water, industrial efficiencies, more livable cities, waste, and safer food.

Consumption and emissions challenges in China. Source: BP Energy Outlook 2035; China Water Risk, McKinsey Global Institute

China is increasingly addressing these challenges with more detailed rules, impressive spending goals and incentives to apply and develop technologies that allow cities to produce and consume more responsibly. Opportunities for Canadian cleantech are in top-notch technologies and services that directly help these local markets achieve their goals.

As inviting, mysterious and excitingly “huge” as China’s potential is, executives are cautioned to make sure that their smart business sense—the thinking that has led them to their current level of success—does not get left at the border when entering the country. Broad strategic questions need to be supplemented with objective consideration of basic market-entry factors to consider: Is foreign participation restricted in your target sector? Do local market licensing hurdles for your product favor domestic companies? What is your IP risk appetite? Are you flexible in equity structures or payment terms criteria? Do potential local partners have competing interests? Will you be able to cost-effectively deliver after-sales support?

If your answers to these early questions point to pursuing China, great! Gather more information, get your visa, book your flights, and start prioritizing and acting on your options. One strategic option to keep in mind (and one that is not considered often enough by many western cleantech executives) is ‘not’ pursuing China. For certain clients, Kachan has recommended objectively comparing the risks and costs of China with similar opportunities in other emerging markets which have similar goals for energy security, healthier citizens and more competitive industries. While taxing even more valuable management time and attention up front, an evenhanded analysis pointing to a “no go” on China (at least for now) helps companies allocate resources more effectively on markets or projects judged to have quicker approvals, clearer procedures, or less risk.

Too often, western firms that end-up walking (or running) away from China shell-shocked, frustrated or just plain exhausted, report in hindsight that they did not allot enough focus to early strategic questions. They also frequently did not engage in, or manage well enough, necessary partner relationships to gather and assess accurate information for market entry and expansion decisions.

China partnerships are essential
In the U.S. and Europe, government involvement in cleantech often gets put through the wringer with grumbling over where and how funding is allocated or frustrations over unpredictable pendulum swings in policy signals. Kachan & Co. has been vocal in advocating smarter government support for cleantech—reducing financial support to specific “chosen” technologies while focusing more efforts to define achievable standards, codes and green targets—and then standing back while industry and private enterprise do their job in deciding the technologies and solutions that work.

For cleantech vendors and investors in China, ‘government’ isn’t a bad word, it is an essential partner. Major sectors urgently needing and attracting cleantech are largely state-owned, with western and private participation subject to central government direction. According to Shanghai-based Patrik Lund, Asia head for Energy and Industry with global environmental engineering group MWH, the challenge, and driver of much complaining from the cleantech world in China (both western and Chinese), is at the local level and the ambiguity and inconsistencies in the myriad ways provincial and local governments interpret policy or in questionable transparency in how they implement their administrative and approval procedures which decide access to opportunities.

As an example, regulations and procedures set by Chengdu to meet or exceed a emission reduction target for example might dictate a far different strategy than a similar project in Hangzhou that is pursuing the same target. As Lund explains, “cities can be at different stages of development, rely on different industrial bases, or have different constraints—say water in the north versus lack of usable land in another region. Therefore they will have different priorities and, quite reasonably, differing perspectives in how they can meet a national target.”

Relationships with relevant local officials and well connected state-owned or private companies and economic development zones have to be evaluated and developed for western firms to make progress. Even in sectors and segments where foreign-direct investment is encouraged, ostensibly giving western firms complete legal and administrative access to markets, local partnerships are still necessary. Direct access does not remove any of the tedious work required to move forward, for example useful information, necessary approvals, sales and supply channels, support services. These channels are fragmented, can rely on rock-solid personal connections, and may be subject to administrative barriers favoring local competitors.

For cash-strapped and under-resourced SMEs with limited bandwidth to accomplish these tasks alone, essential partnerships very often also include knowledgeable and reputable intermediaries (whether Chinese or western-invested) on the ground that are plugged into the relevant local sector channels and decision makers.

China competitors have the home-court advantage
Western cleantech companies will generally face three classes of potential competitors in China: Other western firms developing and selling similar (high-tech, high performance, high priced) products and processes; Chinese incumbents or companies quickly bringing substitutes to markets (usually lower price, less performance); and customers and partners (Chinese and/or foreign-invested) who develop into competitors.

Canadians have quality innovation and high performance solutions to offer. The ‘hardware’ portion—generic components, supply logistics, or manufacturing infrastructure for example—can be localized very well to drive out costs and certain higher functionality that the market won’t pay for. Your Chinese vendors and partners can do this well and will compete (either with you, or amongst themselves) for this part of the business.

The Canadian firm’s valuable competitive advantage will be in the ‘software’ contribution such as essential IP and regular upgrades, highly specialized management skills, or unique support service expertise. This proprietary value is what China mainly wants (and in many cases why China is receptive to working with you). If your customers and partners become able to deliver the ‘software’ without your input, they may soon be competitors.

Central policy is clear on attracting advanced western technology that benefits China. Very often, and especially in industries that are slowly opening up to direct foreign investment and participation, market access is tied to trade-offs of technology or knowhow transfer to some degree. A relevant example involves the Strategic Emerging Industries (SEIs) program.

China's Strategic Emerging Industries (SEIs)

Energy Saving and Environmental Protection

New Energy

Biotechnology

Advanced Equipment Manufacturing

New-Energy Vehicles

New Materials

Next Generation Information Technology

The seven SEIs are advanced, knowledge and tech-centered industries (each of which have relevance to cleantech) with state-level support for preferential tax, fiscal, and procurement policies. The aim is promoting investment into higher-value technologies that improve industrial efficiency, clean-up the environment, create jobs, and most importantly, develop advanced knowhow for Chinese firms to be able to compete, and lead, in these relatively new industries still with no (or few) global leaders in place yet. Chinese partners will be thinking long-term of how they can achieve these SIEs goals with your technology and knowhow, and not necessarily with you.

China's SEI policy goals. Source: U.S.-China Business Council, 2012

The issue for westerners is to carefully balance their own business priorities (protecting core IP and accessing markets) with Chinese partner goals. MWH’s Lund, who has worked with multinational and Chinese energy and resource giants for over 15 years, recommends two approaches: “Always aim to upgrade your own IP, be it technology or services, and align Chinese partners with clear incentives to protect your IP as the most direct way to reach their goals.” If not, your partners will quickly begin finding ways to replace you or compete with you, “which is not something unique for China, but what you would expect in any competitive business environment”, according to Lund.

Having the patience, management capacity, strategic flexibility, and the budget to understand and carefully manage the simultaneous rewards and risks in the constantly interacting markets-partners-competitors playing field may well be a prerequisite for success.

This is the second article (the first article is here) in a multi-part series by Kachan & Co. in which we identify a range of opportunities, discuss common risks, and suggest a few tips that Canadian cleantech companies interested in China might well consider. We hope you find these insights useful.

Jim Mahoney is Managing Director of China at Kachan & Co. and a former Managing Director-China for Cleantech Group. He has lived and worked in China for 18 years advising and managing western SME investments and operations in China. He can be reached at jim@kachan.com.

China questions Canadian cleantech companies should consider

Jim Mahoney — Mon, 12 May 2014 19:16:22 +0000

Canada boasts 700 small and medium-sized enterprises (SMEs) developing innovative cleantech and sustainable development technologies, more than half which already export, and up to 10,000 SMEs involved in solutions and sectors where cleantech is applicable. Common challenges for many of the younger or earlier stage firms is accessing the development capital and industrial partners for requisite trials and pilots needed to get their innovations proven at industrial scale and into viable markets.

China has hundreds of bustling, congested cities urgently needing to clean-up dangerous pollution footprints while striving to shift to cleaner, more efficient, and higher value economies that meet and achieve increasingly aggressive clean-up targets set down by the central authorities. Local Chinese governments and companies are actively seeking, both at home and abroad, practical and affordable solutions and expertise which they can use now, or can finish developing in short order and then quickly rollout. For effective technologies and solutions that directly solve specific problems, Chinese cities are prepared to bring attractive monetary and regulatory incentives to the table.

China is “cleaning-up” because it has no choice
The overriding global drivers of cleantech—growing demand for finite energy, water and natural resources to provide for growing populations seeking higher standards of living—are only becoming more pronounced. Nowhere is the necessity to do more with less as evident as in China. Daily media headlines portray China as the “poster child” in the dilemma of providing more power, cleaner water and safer food to massive urban and rural populations, while reducing regular episodes of “off the charts” air, treating vast swaths of unsafe water, and rehabilitating sick land scattered throughout the country.

Downtown Beijing on a relatively good air day, and a bad air day. Source: Kachan & Co.

In advanced economies—with high standards of living and industrial chains that are generally more efficient and less ‘dirty’ than in emerging countries—pursuing cleaner energy sources, less toxic industrial inputs, or fewer harmful emissions can sometimes be looked at as “nice-to-haves” rather than “need to haves.” For China, though, cleaner water, air and safer food are all necessities now.

The country’s leaders are determined to re-vamp the heavy energy and resource intensive industrial structure. They recognize that if they do not aggressively build on impressive initial efforts for greening ‘dirty’ industries and creating cleaner, higher value industries now, they will face exponentially higher costs down the road in economic constraints and higher social costs of vast numbers of angry, unemployed, and chronically ill people. These challenges are steadily amplified by the country’s efforts to secure energy, mineral and food resources across the globe that will house, transport, feed and entertain an urban footprint that is expected to grow from between 100 million by 2025 and 350 million over the next 15 to 25 years.

Indeed, China’s fossil fuel consumption (70% of energy demand growth up to 2035), harmful emissions and water strains resulting from the urbanization drive will continue to rise for many years. The good news is that China is vigorously adjusting regulatory direction and allocating money and incentives aimed at increasing the proportion of cleaner inputs and more efficient usage of energy, water and resources.

New Energy Generation (taking into account renewable generation capacity factor) for Electric Power in China in 2013. Source: Matthews and Hao, 2014

Cleantech’s ‘second wind’ is ripe for leveraging China opportunity
The cleantech sector has faced gusty headwinds in North America and Europe over the last few years. Anticipated game-changing breakthroughs did not materialize. Technology roadmaps and commercialization proved far longer and more costly than envisioned (in part due to weak financing support in the wake of the global recession). The resulting poor returns not only helped sour investor and business confidence in the sector’s promise of a cleaner tomorrow, but also helped amplify public debate on the merits of regulation and tax-payer money supporting more costly cleantech development at the expense of shorter-term economic levers such as cheaper traditional fuels, jobs and social programs.

As Kachan & Co. has recently published, cleantech is seeing a comeback on more market-driven terms and signs of renewed investor interest. “Pick and shovel” products (e.g. efficient lighting, low cost renewable energy generation, power data and management software) are quietly becoming entrenched across the globe. Cities and large industrial players are increasingly partnering with cleantech firms to expedite their own innovation goals and at the same time helping SMEs bridge financing gaps, gain domain knowledge, speed industrial pilot projects, and leverage scales of production and established distribution channels into markets.

Like their counterparts across the globe, quality Canadian cleantech start-ups and SMEs that have survived the tough years did so by learning to deliver more practical benefits to specific sets of customers, embracing less capital intensive business and financing models, and adopting more professional management and marketing principles.

Matching Canadian Cleantech Innovation with China’s strengths
More and more of these successful, or at least surviving, cleantech firms are investigating China to leverage any number of inviting incentives from local authorities, companies and industrial zones—investment capital, low-cost financing, regulatory and tax support, and extensive industrial infrastructure and supply chains—that help speed technology development, testing and production.

Marc MacArthur, CEO of Crosstaff, an Ottawa-based sustainable technology advisory and project development firm, judges Canada is doing an excellent job encouraging cleantech innovation through research and early-stage technology development. According to MacArthur, “Canada currently leads the G7 in post-secondary research investment. Programs like the Scientific Research and Experimental Development tax credit (SRED), the $1B Sustainable Development Technology Canada fund (SDTC), Industrial Research Assistance Program (NRC-IRAP), Climate Change and Emissions management Corporation (CCEMC) and the Build in Canada Innovation Program (BCIP) to name a few have been tremendously helpful to sustainable technology companies and are regarded as models to emulate in other markets”.

Where MacArthur sees major hurdles for Canadian firms though is in Canada’s relatively small market size due to its small population, abundance of resources and relatively few overt environmental challenges compared with other markets. He also cites inadequate technology deployment funding including venture capital, and a manufacturing base that is not robust enough to get many of these valuable solutions tested and proven at industrial scale.

Enter China, a potential marketplace not encumbered by those limitations. China by no means will be the answer for everyone. Yet the size of potential markets and an abundance of regulatory and monetary incentives for cleantech solutions, make a persuasive case for Canadian cleantech firms to take a close look.

Western cleantech start-ups and SMEs mainly come to China for one or more of:

a market for current, proven cleantech and sustainable solutions;
a source of capital, finance or low-cost R&D and manufacturing resources; or
a collaboration platform for supplying products and solutions to global markets.

So, how do Canadian cleantech SMEs get noticed, gain access to, and develop such opportunities in China? There is no cookie-cutter approach. For one, cleantech covers a broad umbrella of sectors seeking cleaner inputs, more efficient processes and less waste applicable across almost any sector. Secondly, China is made up of dozens of regional and localized markets (as opposed to one huge bucket) each with their own priorities, administrative procedures, and institutions tasked with planning and implementing their clean up.

Canadian SMEs interested in China therefore should consider focusing initial efforts on gaining the accurate and relevant information that will help them i) understand whether they indeed have legitimate opportunities to pursue, ii) understand clearly what specific value and proprietary knowhow they are prepared to bring to the opportunities, and iii) understand the particular partnerships they will need to develop and maintain in order to access and develop the opportunities. A useful exercise to help assess potential, risks, and options involves considering three key questions:

What does China want from Cleantech?

In a word, China wants “everything” – enough energy and resources, cleaner air and water and food, more livable cities and higher-value industry.

China wants cleantech that capably addresses problems targeted in national policy goals. Local governments are increasingly tasked with meeting environmental targets, making their cities more sustainable and building cleaner industries. China policy not only strives to rollout such solutions at home, but also to acquire or co-develop the know-how to own and build up leadership in these technologies to take abroad and compete globally.

China wants demonstrated successful technologies and solutions that are available now (or soon). More often than not, you must have something tangible and proven (either through pilot projects in China, or by bringing the Chinese to working installations abroad). China is a recent arrival to globally competitive industries. The country does not have 50 years of knowhow through R&D and continuous strings of tech development iterations, nor do they have the inclination to develop these capabilities themselves. It is cheaper and faster to buy and license western technologies, and if possible continue developing them.

China wants cost-effective cleantech. China’s world-class supply-chain and manufacturing infrastructure developed largely based on low-costs (e.g. abundant labor, low-margin/high-volume economies of scale, weeding out non-essential functions and logistic costs) and this is a competitive advantage western firms can trip over by fighting it, or benefit from by embracing it. China’s current industrial infrastructure largely remains far more wasteful, energy guzzling, and polluting than in advanced economies like Canada. Therefore, China seldom pursues the latest, highest priced solution. For example, a 3^rd-generation process say—that delivers 50% functionality compared to the latest 5^th-generation process, but at just 1/2 the price—can still provide acceptable performance benefits at an acceptable margin. As China rolls out that solution at home, and later abroad, lower-cost will be a main competitive differentiator.

Simon Littlewood, CEO of China-based New Climate Group, points out that when a western solution clearly meets the above criteria, “the local project owners will be proactive in a number of ways, such as helping getting relevant approvals, working with both government and private funds to quickly create a comprehensive funding package.” Littlewood, who has been investing in and developing sustainable solutions for markets in Asia and China for nearly 20 years, relates that the most successful projects start with his Chinese partners clearly identifying specific, pressing market need. With that information, his teams then find and work directly with the investors, governments and cleantech executives that are laser focused on the specific solutions and applications the Chinese projects require.

Is my Intellectual Property (IP) safe?

For small, innovative cleantech companies, IP is often all they have to offer and hence protecting it is job one, and so a workable IP strategy is often a pre-requisite for China entry. Common tactics include a robust patent portfolio in China, “blackboxing” the essential codes or recipes, keeping the latest 15% of knowhow in-house while licensing the rest, breaking up essential knowhow in separate ‘silos’ across various supply chain partners, and utilizing clear rules and procedures for non-disclosure and non-competition in staffing and 3^rd-party contracts.

New Climate Group’s Littlewood offers sound advice. He agrees that one’s IP strategy is critical, yet must be flexible, and cautions that “even with a smart strategy in place, in today’s global world, if you’re not constantly developing your IP then you are going to be dead in the water anyway. The best long-term solution is a strong Chinese partner in a well-defined relationship that is properly structured to make it in your partner‘s interest to also protect your IP.” As an example, Littlewood points to products or services that require continuous support or upgrading to remain competitive, “if you as the Canadian partner are not the ones able to, or agreed to, provide that, then you basically have no lasting value for your Chinese partner, and they will look to move on without you.”

Interestingly, western company executives with extensive time and experience operating in China, more often than not, place IP protection rather far down the list of issues and priorities. Much more of their time is occupied handling operational issues such as difficult administrative approvals, non-transparent market information, local protectionism, talent retention, and the speed of market changes and competitor moves. These same executives often stress that many of the most compelling opportunities that collaborating with Chinese firms can offer—squeezing out unnecessary costs, fast scale-up, or exclusive customers—can be lost to companies that maintain less flexible or over-zealous focus on 100% IP protection.

How do I approach China?

Have something ‘special’ to showcase.
In many cases, Canadian offerings (innovative, niche, high-tech) will be competing with other western countries’ offerings (high tech, high performance, high cost) more so than with Chinese competitors (often lower-tech, less functionality and lower pricing). Cleantech innovation developed within Canada’s traditional forestry , mining, and oil and gas sectors are just a few examples of particular strengths that Canada is developing to deliver cost, quality and environmental performance at home. These are three very important sectors in China that must adopt more sustainable technologies to meet increasingly stringent environmental targets.

Get visibility in front of the right potential partners.
Peter Corne, Managing Partner of Dorsey & Whitney LLP in Shanghai, points out that “the market situation here is very fluid and very much driven by whom you meet and the way you follow up who you meet. Chinese companies can often be run like little fiefdoms so it is essential to reach the decision makers at the top. This is difficult to do, especially for SMEs with limited resources.”

Corne, a 20-year China veteran who leads his firm’s well-respected China cleantech practice, relates that plenty of westerners waste time in early efforts by going through middle management whom they have met through trade shows, business delegations, or responding to correspondence initiated by Chinese firms. These Chinese contacts do not have decision making power and may not have access to that level. Littlewood also recounts that many westerners also spend valuable time in proactive googling, emails and phone calls, which shows initiative and can indeed lead to preliminary meetings, “for start-ups and smaller firms with minimal resources it may be a long while before identifying and reaching genuine potential customers or strategic investors, not to mention the time involved in relationship building.”

Both Corne and Littlewood emphasize the benefits of getting to know and utilizing effective local partners. These mainly being the companies and government officials responsible for the specific types of projects and applications you are looking for. For firms that are new to China, valuable partners might just as importantly be plugged-in advisors and professional service companies and on the ground, who have the domain knowledge and the requisite relationships with the relevant heads of local governments and companies that you need to get to know, collaborate and negotiate with.

Have a presence “on-the-ground”.
To be able to accomplish the first two tasks above, a capable person or a partnership resource is needed in-country. Corne stresses, “ that resource on-the-ground is essential to be able to get a proper feel for how things are working here day-to-day, to identify and leverage opportunities as they arise, and just as importantly, to properly relay that timely information back to HQ to gain or maintain leadership buy-in and decision making feedback.”

“Cleantech firms who do not make that commitment are just too slow for the speed that China moves, and invariably struggle to make much progress,” stresses Corne.

This is the first article in a multi-part series by Kachan & Co. in which we identify a range of opportunities, discuss common risks, and suggest a few tips that Canadian cleantech companies interested in China might well consider. We hope you find these insights useful.

Predictions for cleantech in 2014

Dallas Kachan — Mon, 09 Dec 2013 15:22:36 +0000

Continuing a tradition since 2007, once again we bring you some end-of-year thoughts about where we think the cleantech investment theme is going.

Our cleantech-specific analysis and advisory firm Kachan & Co. focuses on this space. We publish research reports. We get briefings from companies introducing new technology. We publish a cleantech analysis service. We’re quoted in the press. We pore over what’s going on in the world in clean/green tech markets and have made some informed calls over the years, like China’s cleantech dominance, the rise of efficiency technologies and the downturn in cleantech venture capital funding.

This year, we’re of the opinion that industry-watchers should take heart. Especially if you’ve been on the page that cleantech is past its prime or otherwise unworthy of your attention of late. Why? Because we’re more optimistic about the year ahead in cleantech than in our last two years of predictions (read 2012 and 2013), which were uncharacteristically negative for a firm that’s often been something of a cheerleader for the cleantech space.

What’s different this year? As you’ll read below, we believe the world turned an important corner in cleantech in 2013.

Gradual recovery in 2014
If you’ve not been looking carefully into the tea leaves this past year, you may have missed the quiet recovery already underway in cleantech, a process we expect will gain even more momentum through 2014.

We had the chance to take a close look at the fundamentals of cleantech this fall in co-authoring a new (and free!) 38-page research report. Titled Cleantech Redefined: Why the next wave of cleantech infrastructure, technology and services will thrive in the twenty first century, the paper analyzes the most recent investment research available across a number of industries and major impact areas.

One section of the report compares the cleantech wave to other technology booms of the last 50 years, like the dot com boom, the networking craze, biotech, the PC and the microprocessor. We found a number of parallels and a number of reasons for optimism comparing the cycles. After 20 years in technology, personally, the more I looked at the data, the more it felt I'd seen this movie before. After an initial frothiness and correction, there’s always a resetting of expectations and execution and a gradual “climb out” of the trough. Gartner calls it a hype cycle. And climbing out of the trough is where we are today in cleantech.

The recent downturn in venture capital investing in cleantech doesn’t mean the sky is falling. The dip becomes less threatening when viewed in the historical context of how venture capital always spikes early in emerging categories, later to be augmented with other sources of capital, such as often-unreported corporate and family office investment, as industries develop. It happened in the dot com, networking, biotech and PC eras, and this transition is now well underway in cleantech, as shown below. We offer a lot more detail, with additional figures and graphs, in our report.

While venture capital was the dominant source of clean technology financing in California in 2008, it played a lesser role in 2012. Source: CB Insights, Collaborative Economics. Excludes project finance and unattributed investments.

Another takeaway from the above: Pay less attention these days to venture capital investment as an indicator of the health of the cleantech space. You risk not seeing the real picture.

In addition to an analysis of patterns in venture funding in previous bubbles vs. what’s occurring today in cleantech, our 38-page analysis on the state of cleantech today also looks at overall investment levels into clean and green innovation and projects. It contemplates what’s to be learned from models like the technology adoption life cycle (of “chasm” fame.) It factors in the recent recovery in publicly traded cleantech funds and other metrics.

In all, based on what we learned writing this report, we forecast a continued recovery in cleantech. Not an exuberant one—we’re betting those days are over—but look for a clear upward trend in many things cleantech in 2014, i.e. corporate, private equity and family office investment, venture debt, project finance, M&A, interesting new innovation, new product announcements, etc. But don’t hold your breath for classic venture investment to increase appreciably.

Term cleantech to stay alive and well
There’s been speculation about whether the term ‘cleantech’ that my previous firm is credited with coining will, or should, persist. My colleagues sometimes suggested the phrase should quietly go away—that our job was to ensure that clean and green propositions are eventually added to all products, that all forms of energy become clean, that all synthetic chemistry and toxins be replaced with natural, biological solutions because these are ultimately the less expensive and potentially only real ways to accommodate more people on the planet.

My current cleantech research & consulting firm Kachan & Co. worried further about the future of the term cleantech this summer. I, myself, had something of a crisis of confidence after a set of cleantech power players I interviewed in Silicon Valley shared the extent to which they’ve been distancing themselves from the phrase. It seemed this summer that many of the investors, lawyers and global multinationals I’d worked shoulder-to-shoulder with for years had started considering cleantech a dirty word.

But today, at the end of 2013, we now predict the term cleantech to persist through 2014 and beyond. We have come to appreciate how our datapoints from the summer were very regional, and how the rest of the world is still enthusiastically embracing the term as shorthand for environmental and efficiency-related technology innovation.

We also now suspect that investors and service providers who recently distanced themselves from the phrase may have been too quick to do so, and anticipate a restoration of the cleantech-related teams at many of these firms. Why? Call it what we will in the future, the fundamental drivers of resource scarcity, energy independence and climate change aren’t going away. The largest companies in the world are demanding more and better clean and green products and services than ever before. And that’s driving a recovery.

The peak in global search traffic for the term cleantech and its subsequent decrease and stabilization mirrors the Gartner hype cycle. Is a gradual climb up again in the cards, as the hype cycle suggests? We predict yes. Source: Google Trends.

Realistically, cleantech teams at private equity investors, law and consulting firms may rebuild in 2014 under the auspices of “energy,” “advanced materials,” or other related monikers drawn from the taxonomy of cleantech. But massive funds earmarked for this space are being raised again (e.g. just this week: Tata/IFC: $400 million, Industry Ventures: $625 million, the UN’s Green Climate Fund: $TBD, expected to be massive) and these sort of numbers are representative of opportunity. And we think it’ll still mostly be called cleantech.

Crowdfunding emerges as viable in unexpected ways
Forget what you know about Kickstarter and Indiegogo. Donation-based crowdfunding only has limited usefulness for companies seeking seed or other early stage funding in cleantech.

In 2014, look for equity and debt-based crowdfunding platforms to catch their stride and serve as legitimate ways for cleantech vendors and project developers seeking to raise relatively modest amounts of capital. (Which isn’t to say we expect the U.S. SEC to sort out all regulations in 2014 around Title III raises under the country's Jobs Act. We expect that equity and debt-based crowdfunding plays in cleantech will leverage Reg D in the U.S. and other similar regional constructs worldwide in the short term to help companies raise money.)

In 2014, expect selected efficiency, “cleanweb”-style big data, collaborative consumption and other capital efficient plays to be able to raise hundreds of thousands of dollars for themselves in equity or debt via horizontal crowdfunding platforms like AngelList or FundersClub, or industry-specific debt and equity portals like Mosaic, SunFunder or a host of other emerging platforms. Under current regulations, such crowdfunded raises may ultimately be feasible up to $1 million per company per year in the U.S.

Which will likely make crowdfunding less attractive in 2014 for big, capital-intensive cleantech plays.

Underperformance in EV sales, and risks to growth rates
Betting that the future of transportation will be all-electric, and that 2014 will be THE year of the electric car, finally? Think again.

Enthusiastic bloggers breathlessly paint the picture that electric vehicles (EVs) are flying out of the showrooms (as in here and here), but they’re selling slower than expected by analysts, with only 150,000 expected sold worldwide in 2013.

Most industry watchers believe EV adoption will be spurred by governmental support in the form of subsidies, infrastructure funding and concessions such as free parking, access to high-occupancy vehicle (HOV) lanes and congestion-zone toll exemptions, along with broader adoption of wireless charging and smart-grid innovations. But, in our analysis, there are other forces causing risk to the growth rates of electric vehicles.

As we forecast last year (read “The internal combustion engine strikes back”), there have been innovations taking place in internal combustion engines (ICE) that could forestall the timing of an all-electric vehicle future. Even more surprising to us have been the substance and volume of fuel cell vehicle announcements this year from the world’s leading automakers—which are likely at least partially responsible for the quiet doubling of certain fuel cell companies’ share prices in 2013. Yes, you read that right: Automotive fuel cell companies’ shares are UP!

In 2010, my line to journalists that “the jury was in, and the future of transportation was to be all-electric.” In 2012, my talking point was that the near-term future of transportation was to be all-electric. In 2013, I started talking about fuel cells possibly succeeding all-electric in the far future of transportation, once costs come down. In 2014, fuel cell approaches may get even more ink and undermine the aggressive uptake expected for electric vehicles.

And that’s not necessarily a bad thing, for if their fuel (hydrogen, methanol, or in some cases formic acid or others) can be created in low-cost, sustainable ways, fuel cell vehicles could ultimately have less of an impact on the planet, given that the power required to drive EVs often comes from dirty sources.

Rare earth profits to be made in unexpected places
Fortunes will not be made in 2014 in rare earth element mining companies. Reconsider buying into rare earth element mining companies or associated funds. If holding rare earth mining investments hoping they'll return to stratospheric levels of yore, consider getting out of them.

Why? In the short term, we think recycling will be one of the few rare earth plays with upward motion. Much of the industry has been focused on new mines to meet growing demand for rare earths. But recycling of rare earths is gaining momentum quietly, and stands to accelerate in 2014 given the increasing costs of mining and cost and schedule overruns at high profile sites like Molycorp’s Mountain Pass California mine.

Brussels-based company Umicore is at the forefront of recycling technologies for critical metals. At its site in Hoboken, Belgium, the company recycles about 350,000 tons of e-waste every year, including photovoltaic cells and computer circuit boards, to recover metals like tellurium. In 2011, it started a venture to recycle rare earths from rechargeable metal hydride batteries (there’s about a gram of rare earths in a AAA battery) at its Antwerp site, in partnership with the French company Solvay.
Japanese car company Honda announced this March that it has developed its own in-house recycling program for metal hydride batteries, which the company plans to test using cars damaged by Japan’s 2011 quake and tsunami.
The Critical Materials Institute of the U.S. Department of Energy is developing a method that involves melting old magnets in liquid magnesium to tease rare earths out.

Watch for more and more companies to be introducing rare earth recycling plays. And watch for a near future trend encouraging electronics manufacturers to design their products to be easier to break apart for rare earth element recovery in the first place.

Getting rare earth metals out of modern technology is hard, since they’re incorporated in tiny amounts into increasingly complex devices. A circa-2000 cell phone used about two dozen elements; a modern smart phone uses more than 60. Despite the relatively high concentrations of rare earths in technology, it’s traditionally been easier to chemically separate them from the surrounding material in simple rocks than in complicated phones.

Recycling is perhaps the best route forward for elements where demand is expected to level off in the long run. Expect demand for terbium and europium, for example, to fade as fluorescent bulbs are eventually replaced with much smaller LEDs. But for other elements, like neodymium, new supply is needed. Currently only tiny amounts of neodymium are required for ear-buds of smartphones—but high-performance wind turbines need about two tons each. But it's only these sort of large quantity applications that are expected to drive the need for new mines.

Other potentially appealing rare earth plays in 2014 include new processes at existing mines to improve processing yields, and the development of alternative materials to obviate the need for rare earth elements.

More on the subject in a brief on rare earths to our analysis service subscribers.

And so concludes our predictions for cleantech in 2014. What do you agree with? What do you disagree with? Leave a comment below.

A former managing director of the Cleantech Group, Dallas Kachan is now managing partner of Kachan & Co., a cleantech research and advisory firm that does business worldwide from San Francisco, Toronto and Vancouver. The company publishes research on clean technology companies and future trends, offers cleantech data and analysis via its Cleantech Watch™ service and offers consulting services to large corporations, governments, service providers and cleantech vendors. Kachan staff have been covering, publishing about and helping propel clean technology since 2006. Details at www.kachan.com.

Rare earth investments today - buy or sell?

Dana Childs — Thu, 05 Dec 2013 18:01:15 +0000

Rare earth elements are used in everything from conventional motors and industrial equipment to electric car batteries, solar panels, wind turbines and advanced lighting. Rare earth companies and funds have been showing signs of life in the last month. Is this the time to get back into the market or is the downward slide of the last two years likely to continue? Here's our recommendation and rationale.

This information is available to subscribers of Cleantech Watch.

Why we have new respect for Tendril after an interview with its CEO

Dallas Kachan — Wed, 13 Nov 2013 19:13:04 +0000

Energy management company Tendril feels it's "emerged into the sunlight," and is "dusting off and blinking" after a long, cold winter in energy management. CEO Adrian Tuck shared the latest at the company today with Kachan Managing Partner Dallas Kachan, and relayed new sentiments re: efficiency among its utility decision maker clients that struck us as counter-intuitive. Good insights and analysis for Tendril competitors and potential customers of Tendril.

This information is available to subscribers of Cleantech Watch.

Should companies use crowdfunding to raise capital in cleantech?

Dana Childs — Tue, 12 Nov 2013 18:22:04 +0000

Today's launch of a crowdfunding campaign to raise capital for a Toronto company seeking to clean up toxic mine tailings in Bolivia gives us the opportunity to take a latest look at how appropriate it is for cleantech companies to use crowdfunding. How, when and why? And what TYPE of crowdfunding? We weigh in with our analysis.

This information is available to subscribers of Cleantech Watch.

New optimism for a cleantech future

Dallas Kachan — Thu, 24 Oct 2013 00:04:57 +0000

If you've not been paying much attention to cleantech in the last little while, it's time to sit up and take notice.

Because post-Solyndra, cleantech has been quietly gaining momentum.

We had the chance to take a close look at the fundamentals of cleantech over the last two months in co-authoring a new (and free!) 38-page research report in conjunction with Oakland, Calif.-based advocacy group As You Sow and the Responsible Endowments Coalition of Brooklyn, New York.

Titled Cleantech Redefined: Why the next wave of cleantech infrastructure, technology and services will thrive in the twenty first century, the paper analyzes the most recent investment research available across a number of industries and major impact areas. It identifies key drivers and market size projections for various cleantech categories. It looks at examples of products and technologies currently on the market. Finally, it highlights a handful of large, mid and small cap firms and funds as possible points of entry for investors within each industry.

The paper does a good job of introducing cleantech and its significance (e.g. even only being a relatively new investment theme, cleantech is still—even today after a downturn—attracting nearly a quarter of global venture capital available.) It re-emphasizes cleantech's multi-trillion dollar individual addressable markets of power, water, agriculture, transportation and others. And it restates the significance of cleantech's drivers, and that they're not going away any time soon.

But to me, one of the most interesting sections of the report compares the cleantech wave to other technology booms of the last 50 years, like the dot com boom, the networking craze, biotech, the PC and the microprocessor. We found a number of parallels and a number of reasons for optimism when you compare the cycles. After 20 years in technology, personally, the more I looked at the data, the more it felt like I'd seen this movie before.

For instance, the downturn in venture capital: Venture capital often spikes early in emerging categories, later to be replaced with more traditional levels of investment and other sources of capital as industries develop. It happened in the Internet era, and this transition has begun in cleantech as shown below; venture capital is playing less of a leading role in driving cutting edge technology, as it's being augmented by corporate investors and other sources of funds. More detail in our report.

Actual and estimated venture capital spending in Internet and cleantech. Source: Matthew Nordan

There's another relevant curve, below, that looks a lot like the one above. We hypothesized in an analysis this summer that cleantech had bottomed out on the Gartner hype cycle. We make the more detailed case in our report that cleantech, as in every one of the previous waves I just mentioned, had experienced the same initial enthusiasm, the same frothiness, the same "irrational exuberance" as Alan Greenspan put it, that these other technologies did as expectations initially exceeded reality.

As the Gartner model below illustrates, in every one of these previous waves, there was a correction, and a gradual equalization of expectations and execution. Our analysis, detailed in our report, is that cleantech is now starting to climb out of what Gartner calls the "trough of disillusionment" and up the "slope of enlightenment" (how very Zen!)

Hype cycle of expectations over time related to cleantech. Source: Gartner

And cleantech IS climbing out. If you look at broad-based cleantech funds as a proxy for the cleantech theme, there's been solid growth the last few months. Yes, cleantech returns have been generally poor for investors the last few years. But there HAVE been bright spots in certain sub-sectors such as clean energy generation, solar services and transportation. The lift from high cleantech fliers like SolarCity (NASDAQ: SCTY) and Tesla Motors (NASDAQ: TSA) is pulling up the rest of the category, as shown in the performance of the PowerShares Cleantech Portfolio fund, a mix of public stocks from across the cleantech definition.

PowerShares Cleantech Portfolio fund (PZD) performance, 2007 to 2013. Source: Google Finance

Another reason our report finds optimism for the cleantech space is in looking at cleantech's various industries through the lens of the technology adoption lifecycle model, a curve popularized by the marketing strategy firm Regis McKenna in Palo Alto, California, where I served as a senior consultant in the mid 90s. I wrote in 2011 about the significance of this model to cleantech, and our new report echoes and expands on this analysis. If the vast majority of clean technologies, services and infrastructure plays have yet to cross the chasm, it means risk and expense getting there, but it also means massively larger market adoption on the other side.

In the widely accepted technology adoption lifecycle model, a market gap exists between early adopters of new technologies and the majority of consumers. This gap is especially treacherous for companies that develop disruptive technologies, as they force a significant change to the markets they target. Only companies nimble enough to transition from the early adopter market (consumers motivated by purchasing the latest technologies for competitive benefit) to the early majority of the vastly larger mainstream market (which prefers to buy established technology) are successful.

The technology adoption lifecycle and chasm model, Regis McKenna. Source: Joe M. Bohlen, George M. Beal and Everett M. Rogers

Different clean technologies have faced their mainstream adoption chasms at different times. For example, wind and solar energy power generation have already bridged the gap. They are now widely understood and increasingly deployed by renewable energy decision makers at power companies, and by individual businesses and homeowners. Algae fuel, for example, is on the far left side of the chart—exciting but yet to scale.

The adoption chasm of new technologies can differ substantially in magnitude. Many cleantech products have been quietly moving the needle on efficiency and waste reduction without fundamentally altering their markets. Lighting is a good example. The transition from incandescent to fluorescents to light emitting diodes (LED) happened without dramatic market disruption. Consumers had a small technology curve to overcome, but the lighting market still requires the purchase of light bulbs. We expect a significant segment of the cleantech transition will happen in this way, with cost and efficiency driving marginal, but resource-significant product changes.

So, in all, our new report finds that cleantech is here, today, now. It observes that efficiency, one of the central tenets of cleantech, is now a theme of almost everything now made, and of how it's designed and manufactured. Cleantech is becoming ubiquitous—from cheaper, more efficient lighting to advanced metering software. Cleantech in all of its forms is poised for even more rapid expansion, especially now that the largest companies in the world have discovered the opportunity and imperative of cost savings... and now that individual technologies are beginning to cross the chasm to mainstream adoption.

As our report concludes, we're just at the beginning of this phenomenon called cleantech. The best and most exciting investment opportunities are yet to come.

A former managing director of the Cleantech Group, Dallas Kachan is now managing partner of Kachan & Co., a cleantech research and advisory firm that does business worldwide from San Francisco, Toronto and Vancouver. The company publishes research on clean technology companies and future trends, offers cleantech data and analysis via its Cleantech Watch™ service and offers consulting services to large corporations, governments, service providers and cleantech vendors. Kachan staff have been covering, publishing about and helping propel clean technology since 2006. Details at www.kachan.com.

Cleantech Redefined

Administrator — Sat, 19 Oct 2013 21:18:00 +0000

After years in development, cleantech infrastructure, technology and services are now going mainstream. Cleantech is revolutionizing how we make, grow, transport and consume things. It's helping the world meet energy demands. It's creating livelihoods and prosperity in uncertain economies. Is there still time for investors to make good returns in cleantech? Yes. Here’s why.

Cleantech Redefined
Why the next wave of cleantech infrastructure, technology and services will thrive in the twenty first century

A report by Kachan & Co., As You Sow and Responsible Endowments Coalition, October 2013.

38 pages
74 footnotes
19 tables, charts & figures

The global economy is undergoing a fundamental change. Companies are under increasing pressure to produce and consume more efficiently. This pressure is creating innovation and, above all, opportunity in cleantech.

In recent years, the cutting edge of cleantech has received outsized investment and headlines, and weathered the challenges of outsized expectations. Now, cleantech in all of its forms is poised for even more rapid expansion, especially now that the largest companies in the world have discovered the opportunity and imperative of cost savings.

Capital is now being invested in cleantech products and services by a variety of sources, from venture capital to cities, businesses, states, universities, and individuals. In 2012, cleantech attracted nearly a quarter of the venture capital (VC) available, capturing $6.4 billion, of nearly $26 billion in VC investment across all sectors. Adding to this, the world’s largest companies are now buying their way into cleantech. These are impressive achievements for an 11 year old category. What will the next decade hold for cleantech as companies rush to take advantage of new efficiencies and opportunities for bottom line improvement?

The good news is that investors haven’t missed a bull run. Cleantech will continue to happen in big ways. Disruptive technologies will continue making old sectors obsolete, while well-known brands, products, and companies will adopt clean technologies and products to improve their balance sheets and investors’ bottom lines. The pragmatic, undeniable opportunity for savings and efficiencies that are driving cleantech’s adoption today will continue to propel mass market acceptance and mainstream adoption.

This paper presents latest investment research on clean infrastructure and technology investment. We have synthesized research across a number of industries and major impact areas, identifying key value drivers and market size projections. We have also included examples of products and technologies currently on the market. We also highlight various large, mid and small cap firms and funds as possible points of entry for institutional and individual investors within each industry.

Report essential for

Endowment trustees, pension fund administrators and other institutional investors
Venture capitalists seeking disruptive innovation
Investment advisors investigating on behalf of latest for clients
Individual investors managing their own portfolios
Service providers seeking leading companies in high growth clean industries
Policy makers grappling with how to support the clean/green economy
And others

Methodology
Kachan & Co. conducted interviews, synthesized secondary materials over a two month period and consulted its Cleantech Watch data service for this report. More than 200 representative public and private cleantech companies are identified in the report. Technologies investigated spanned the clean technology spectrum of clean energy, energy storage, efficiency (including green building, smart grid and collaborative consumption), transportation, air & environment, clean industry, water and agriculture.

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"Clean technology has had 10 years of mostly underwhelming returns. Yet there have been bright spots. And a broad recovery seems to be underway."

-From the report

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About the authors

Dallas Kachan, Managing Partner, Kachan & Co.
Dallas is the principal of cleantech research and consulting firm Kachan & Co. He was formerly managing director, executive editor and head of global marketing for the Cleantech Group, credited with coining the term cleantech and founding the cleantech investment theme. Dallas has authored 400+ cleantech articles and reports, served on the board of the U.C. Berkeley Haas School of Business' Cleantech Institute, is a regular speaker on cleantech worldwide and is widely quoted in the press.

Danielle Fugere, President, As You Sow
Danielle is responsible for strategic management of the Energy, Environmental Health, and Waste programs at As You Sow. She has achieved broad and lasting corporate change in clean energy, climate, and environmental health through shareholder actions, innovative legal strategies, and regulatory and legislative work. Previously ED of the Environmental Law Foundation and Legal Director and Regional Program Director for Friends of the Earth, she holds a JD from Berkeley School of Law and a BA in Political Economics from U.C. California, Berkeley.

Contributing authors Jean-Francois Denault, Senior Consultant, Kachan & Co., and Amelia Timbers, Energy Program Director, As You Sow. This report was made possible by the generous support of (in alphabetical order) Educational Foundation of America, Libra Foundation, and Wallace Global Fund. Additional support was provided by Arntz Family Foundation and the Fred Gellert Family Foundation.

Report partners

Founded in 1992, As You Sow promotes environmental and social corporate responsibility through shareholder advocacy, coalition building, and innovative legal strategies. Its efforts create large-scale systemic change by establishing sustainable and equitable corporate practices.

The Responsible Endowments Coalition (REC) is the leading voice for responsible investment in higher education in the United States. REC educates and empowers students, alumni, and campus communities to encourage their institutions to incorporate environmental and social considerations into their investment practices.

This report is based on information available to research staff and is believed to be reliable but no independent verification has been made. Perspectives expressed represent our judgment at the time of writing and may change in the future as circumstances evolve.

Kachan & Co. is not a registered broker dealer or a registered investment advisor. Nothing herein is intended to be or should be construed as investment advice. This document does not recommend any financial product be bought, sold or held, and nothing in this document should be construed as an offer, or the solicitation of an offer, to buy or sell securities. This report is not to be relied on by investors, disseminated to the public or summarized, quoted from or incorporated by reference in any document which is to be disseminated to the public. Investors should not make any investment decision without consulting a fully qualified financial adviser.

Breakthrough emerging tech: zero gravity, new type of jet propulsion

Dallas Kachan — Wed, 16 Oct 2013 14:55:04 +0000

It sounds like science fiction, but new innovation that can create small zero gravity zones on Earth, and a new way of moving air are being examined by venture capitalists for funding. The new breakthroughs could revolutionize manufacturing, materials, heating and cooling, even propulsion. They illustrate that innovation is indeed alive and well in cleantech. More details in this briefing from Kachan & Co.

This information is available to subscribers of Cleantech Watch.

Fossil fuel profits will continue - do you want to support them?

Dana Childs — Wed, 09 Oct 2013 21:27:35 +0000

Climate News Network authored a piece this week suggesting the fossil fuel industry will have to be severely curtailed and the bulk of its assets frozen. In our view, this is dangerously flawed and misleading. Here's our analysis of why.

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