POLLUTEC, an internationally renowned exhibition on the environmental protection industry, staged its debut in Shanghai from November 3 to 5.

Over 180 of the world's largest environmental protection companies such as Adamas, Boomax, Chemitreat and Earth Link participated in the exhibition. Also on show were official pavilions from nine countries and regions such as France, Germany and the UK.

Pumps, incinerators, fuel-efficient motors and other equipment occupied the 20,000-square-metre exhibition centre with company officials introducing their products and solutions with the help of computers and models.

The firms attended the event to secure contacts and contracts as well as promote cost-effective solutions for environmental protection in the rapidly-developing country.

"There is no question that China is becoming one of the most important environmental protection markets in the world, providing excellent investment opportunities to investors," said Josephine Lee, East China's vice-president of Reed Exhibitions, one of the event organizers.

According to the current Five Year Plan (2000-05), China plans to invest US$84.3 billion in environmental protection, or 1.3 per cent of GDP (gross domestic product).

The new Clean Protection Laws have led to a high demand for cleaner industries, innovation, resource recovery and environmental management. Spurring the legislation was the government's mounting concerns over the worsening environmental situation.

Shanghai has invested more than 19.13 billion yuan (US$2.3 billion) researching solutions to waste water, air pollution, solid waste and agricultural environmental protection, taking up more than 3 per cent of the city's GDP.

"The investment volume will be larger in the future as Shanghai welcomes the World Expo in 2010. Our aim is a better city and a better life," said Zheng Huaxing, vice-chairman and secretary general of the Shanghai Environmental Protection Industry Association.

Started in 1970, Shanghai's environmental protection industry has become an important industrial sector, and according to Zheng, will become a pillar industry in Shanghai. There are over 1,000 companies and 107 institutes and research centres engaged in protecting the environment, which brought in a gross profit of US$1.5 billion in 2004, according to the local environmental protection bureau.

Although Shanghai boasts more than 18,000 companies in the sector, few of them were seen at the exhibition.

"Although the number of the companies seems satisfactory, there still exists a big divide between them and their Western counterparts," said Zheng.

Statistics show that 51 companies' assets reached only US$50 million which is less than the annual income of a large international company in the field.

"The companies lack human resources and advanced technology and have difficulties upgrading their facilities and developing new products," said Zheng.

Another problem facing the domestic industry is its lack of market share.

"The government plays a key role in environmental protection. It makes plans and budgets, and takes charge of the bidding and choosing of proper partners," said a director, who declined to be named, from the Shanghai Specialized Business Incubator.

Because most of these are big projects, the opportunity to win bids is rare for domestic companies which lack capital, experts and the advanced technology needed for a big environmental protection project,'' he said.

"The limited market and the large number of companies drove companies to lower product prices to gain a competitive edge. And the price wars add to the shortage of technology and capital which causes a quality problem," said Zheng.

"The vicious competition may foster one or two big companies but their market may become smaller. The poor product quality of these companies drives customers to foreign companies," said Zhang Fangqiang, an expert from the local environmental protection industry association.

"Our customers prefer environmentally friendly products made by foreign companies," said Luo Jing, manager of a lighting superstore in Hongkou District.

"Although the lights cost more, their life-span is longer and they're more efficient," said Luo.

Shanghai is hoping to attract more foreign investment and partnerships with foreign countries to control pollution.

An energy efficiency programme for the city's buildings will be launched by the French Global Environment Fund.

The programme includes reducing the demand for air-conditioning and the rehabilitation of existing buildings with the aim of reducing current carbon dioxide emissions, which stand at 5 million tons per year.

Shanghai also signed a contract earlier this month with the Italian Institute for Foreign Trade and its environmental protection bureau to co-operate in building an air quality monitoring system, disposing of medical waste and utilizing clean and alternative energy.

"Shanghai has a promising market for environmental protection. I am sure more and more Italian companies will come to Shanghai," said Giovanna Chiappini Carpena, an official from the Italian Institute for Foreign Trade.

"The problem is the policies and support of the government," said Douglas Barnes, head of the UK Environmental Industries Sector Unit.

"Sometimes, it becomes necessary to forge partnerships with local companies who know better the regulations and laws and the ways of dealing with the government," said Barnes.

"The exhibition is a great opportunity for foreign companies as well as the environmental protection industry in Shanghai," said Xu Jianhua, vice-director of the local environmental protection bureau. "What we lack is advanced technology and good policies and support to utilize them."

The Shanghai Specialized Business Incubator for Environmental Protection was established in Shanghai's Yangpu Hi-tech Innovation Service Centre on August 25, 2003.

It is trying to form shared service platforms including technical support, investment, marketing, information, consultation and co-operatives with universities, relevant research institutes and other service providers.

"We hope the incubators can foster China's environmental protection giants," said Zheng.