Create a "second growth curve", environmental industry ushered in a new stage of development!


The first appearance of the new president of the All-China Federation of Industry and Commerce Environment Chamber of Commerce, brought some new thinking to the industry. At the 2023 Meeting of Environmental Entrepreneurs held on March 1, Li Qilin, new Chairman of the Environment Chamber of Commerce of the All-China Federation of Industry and Commerce and President of Fresh Environment, said that in the past ten years, the environmental industry has experienced the beautiful era of the 12th Five-Year Plan, the period of shock in the 13th Five-Year Plan and the bottoming period of the Third year of the New Crown, and is now exploring new opportunities for development and creating a "second growth curve".

As the epidemic prevention and control enters a new stage and new drivers for high-quality economic development are added, the advantages of strong resilience, great potential and vitality of the Chinese economy will once again emerge, and the environmental industry will once again embrace new opportunities for incremental expansion.

1. Bid farewell to the "bottoming period", and the environmental industry welcomes new opportunities for incremental expansion

At the end of last year, the Chamber of Environment and Commerce of the All-China Federation of Industry and Commerce succeeded in changing its term and welcomed the new rotating Chairman Li Qilin, the post-1980s Secretary-General. On March 1, just ahead of the annual Legislative sessions of the People's Republic of China, the Chamber of Environment Commerce held the annual Media Meeting for environmental entrepreneurs. This was the first time that Li Qilin attended the meeting as Chairman of the Chamber of Environment Commerce, which also brought some new ideas to the meeting. In his opinion, the environmental industry can be divided into three stages in the past decade: the good times of the 12th Five-Year Plan, the shock period of the 13th Five-Year Plan, and the bottoming period of the third year of the COVID-19 pandemic.

During the 12th Five-Year Plan period (2011-2015), the state issued a lot of key policies to support the development of environmental industry, and successively issued important policies such as "Ten atmospheric policies" and "Ten water policies", ushering in a "beautiful era" for the industry. During this period, the scale of the environmental industry continued to grow rapidly, the number of environmental enterprises increased significantly, and the indicators of enterprise revenue, profit, cash flow and other indicators improved comprehensively. Meanwhile, the capital market also continued to be optimistic about the environmental industry, and the environmental industry ushered in a period of rapid development.

During the 13th Five-Year Plan period, the environmental industry showed a period of shock. In 2017, the investment boom in PPP projects began to cool down at a high level, and in 2018, the impact of macroeconomic "deleveraging" was added, resulting in great changes in the environment for the development of the environmental industry. The market value of listed environmental companies shrank significantly, and the market value of many enterprises dropped to about 20-30% of the peak.

And the recent "three years of COVID-19" has had an important impact on global politics and economy. In addition to the subdivisions of medical waste disposal, sanitation and environmental health, which are directly related to the fight against COVID-19, the operation of most environmental enterprises has been negatively affected, and the stable operation and systematic risk resistance ability of environmental enterprises have undergone a major test.

However, as the epidemic prevention and control enters a new stage and new drivers for high-quality economic development are added, the advantages of strong resilience, great potential and vitality of the Chinese economy will once again emerge, and the environmental industry will once again embrace new opportunities for incremental expansion.

2. Be alert to the "low gross profit trap" and promote the healthy development of the industry

While the environmental industry is entering a new development period, focusing on the present, we should also focus on several typical problems worth thinking and discussing, one of which is the "low margin trap". As we all know, there is a "middle-income trap" in national development, which refers to the phenomenon that a country stays in the middle-income range and slows down its growth rate after moving from the low-income stage to the middle-income stage. The "low gross margin trap" in the environmental industry is unheard of.

Li expressed that the so-called "low-income trap" does not mean that the capacity of the environmental industry is low in absolute terms, but that compared with the past, the gross profit rate of the industry has decreased. For example, during the 12th Five-Year Plan period, the gross profit rate of environmental industry was relatively high. Taking monitoring and testing instruments as an example, the gross profit rate at that time could reach about 40-50%, the gross profit rate of water operation and garbage operation could also reach 30-40%, and the gross profit rate of environmental protection engineering was about 15-20%. However, since entering the "13th Five-Year Plan", the gross profit rate of the environmental industry has been on the decline, with each subdivision basically declining by about 10 percentage points, until now it is still at a low level.

Of course, if you compare it to some of the "overcapacity cutting" industries, they may have a gross margin of 8-10% which is good. Therefore, the "low margin trap" of environmental industry is a relatively dynamic concept, a problem in development, rather than the absolute level. In a word, environmental enterprises should also pay attention to the gross profit rate while achieving rapid growth, so as to develop more healthily.

3, do a good job of guidance and norms, the industry has had some benign changes

Why does environmental industry appear "low margin trap"? There are two main reasons for Li's summary. First of all, low gross profit is related to the basic attributes of environmental industry, which itself is not an industry pursuing high gross profit and excessive profits. Second, it has to do with competition. The price of environmental protection projects, at the beginning are policy pricing, and then gradually enter the market competition. If it is an engineering project, it needs bidding competition, and then the lower and lower the bidding, and finally homogenized competition.

From a favorable point of view, this reduces the cost of pollution control, which is a good thing. On the other hand, it is not a good thing if the price falls in a disorderly way to an unacceptable cost and the industry enters a state of disorderly competition.

In the face of this phenomenon, how can we solve it? Li Qilin put forward three suggestions:

First of all, it is the transformation of the product business of the enterprise itself. It is necessary to make a difference, have better technology and lower cost, and keep the gross profit rate. This may be achieved by relying on technological progress.

Second, at the industry level, it is necessary to promote the standardization of the industry, avoid the phenomenon of "bad money driving out good money", and do a good job in guiding and regulating the industry. At the same time to let the customer understand, should choose some good enterprises.

In fact, there have been some benign changes in the industry in the past two years. Customers no longer win the bid with the lowest price, but score comprehensively. The industry should continue to call on customers to accept this concept.

Third, at the government level, it also involves the pricing of environmental governance. In the past, environmental governance has always been a "cost item" for society, while the "value item" was not obvious. Take thermal power desulfurization and denitrification subsidies as an example. After the initial results of haze control, the subsidized electricity prices in some places have been gradually eliminated or reduced. Then, to what extent should the reduction be reasonable? If it is cancelled all at once, the cost of environmental enterprises may not be able to support, so it should be moderate price reduction.

In a word, the enterprise level, the industry level, as well as the government level should do their own things, so as to better solve the problem of low gross profit. I hope that this problem can be properly solved in the future, so that the environmental industry can develop faster, better and healthier!