DiligenceChina

Screw you Al Gore. You promised me endless summer — one long sultry tropical nightmare. A tropicapalypse if you will. Instead I’m freezing my ass off in snowy, slushy Shanghai. It was never like this before you ran for the Nobel Prize. Lousy Democrats.

So this is probably a good time to talk about green-technology and the coming boom in eco-business – and a couple of big business trends that may rebalance the relationship between the US and China. We are used to hearing westerners lecture emerging markets about free enterprise and government non-involvement in business – but we may be proving our point most dramatically through our own folly.

After decades of oil-company inspired energy policy (and cars designed for maximum fuel consumption) we are witnessing a slow collapse of the US auto industry. While we send divisions overseas to secure oil sources, VCs and investment banks are deploying and maneuvering to secure China’s solar cell and alternate energy startups. And other US industries that are protected or artificially controlled also look vulnerable. Look for Chinese brands to make big moves in electronics, telecom, wireless networking, alternative energy, and transportation.

Three areas were IP transfers may reverse in the next few years:

Small screen devices. You can call them phones, smart-phones, PDAs, or micro-computers. Companies like Dopod, O2, Asustek and HTC have already leap-frogged stodgy western tech houses with their innovative designs and wide range of options. Asians upgrade mobile technology and try out new services all the time — while US consumers constrained by a disgraceful web of monopolistic restrictions are simply not exposed to cutting edge technology. As Microsoft and Apple continue to bloat-up their offerings and make US consumers choose between tech-tyranny (MS) and the cult of exclusion (Apple), Chinese firms will offer buyers a wide range of innovative, inexpensive devices that are easy to use and interconnect. These little hand-held computers are getting more and more powerful – and versatile. While US makers build in more security and anti-cracking measures, Chinese manufacturers are redefining the category with new functionality and cutting edge design. I’ve seen lots of people switch from Motorola to Dopod — I don’t know of anyone who has gone the other way.

Green tech & infrastructure. China has a problem with fossil fuel and pollution, and it knows it. The US has a problem with fossil fuel and pollution but is in denial. The upshot is that Chinese companies (and multinationals based here) involved in solar power, wind power, biofuel, clean coal, and smart building design are attracting lots of attention from international investors and VCs. Will these technologies all work? Probably not. But when industries are in flux, all it takes is one winning idea to dominate the category. US policy on alternative energies has been a disaster. Contradictory, self-serving, overpriced and ineffective, US responses to oil shortages and environmental degradation have probably caused more harm than good and reduced ‘green technology’ to the status of quirky micro-industry.

Travel & transport. Air & auto. Ok, these aren’t likely to be strong export items – but as China takes on a dominant role in transport-related industries, new technologies and usage patterns will leave US providers playing catch-up. Lacking an oil-auto oligarchy to convince ordinary urban families that they absolutely require pairs of massive, gas-guzzling SUVs to be happy, China has been able to explore some very innovative approaches to transport. You may not be able to tell from your morning commute, but Chinese authorities have put two sets of policies in place that may allow them to preserve their environment and develop an important new industry at the same time.

First, China has been committed to building an integrated transport infrastructure for at least 20 years. The Chinese have been laying asphalt and stringing cable far and wide for decades. While it’s not as sexy as constructing the world’s tallest building or super-fast levitating trains, the low-tech approach has enabled Beijing to activate economic development throughout the country. China has also built more airports, light rail systems and fast intercity trains than any other country in the world. The Chinese may not be able to export roads, airports and networks – but they can sell the equipment, materials and consulting expertise needed to design and build that infrastructure.

Second, many Chinese cities have policies in place that would allow them to restrict auto ownership (though you wouldn’t know it from the number of cars clogging the roads). Through a cumbersome series of regulations, fees and auctions (for license plates), Chinese citizens have grown used to the idea that private auto ownership carries restrictions. They are also willing to experiment with a wider range of hybrids and quirky designs (tiny cars, electric bikes, alt-fuel buses). The notion that individual auto ownership is NOT an inalienable human right may very well end up being the most significant transportation-related trend of the 21st century.

These changes aren’t going to transform the relationship between the US and China overnight, but they will be the first visible manifestations of a China’s rise as a new type of commercial power. Everything up until now has just been prelude.