Now is China's chance to save the world – twice

As the Copenhagen climate summit approaches, all eyes are on China. It is, after all, the world's largest carbon dioxide emitter, and so has a large part to play in righting some of the wrongs inflicted on the Earth's environment. But the size of China's clean technology sector could also play a big part in world economic recovery.

There are immense opportunities – some estimates say the industry could soon be worth up to US$1 trillion a year – and the government has clearly recognised some of this potential. To name only a few examples: power production using wind and solar energy is not only permitted but encouraged in the latest Foreign Investment Industrial Guidance Catalogue; natural gas continues to grow in popularity (China Natural Gas recently completed a US$50 million listing on the Nasdaq global market in the US); and the country is said to be investing between US$440 billion and US$660 billion in its clean energy industries over the next decade.

There are many chances for investors, both local and foreign, to make money, but there are still significant regulatory obstacles in the way. Overseas venture capitalists hold much of the funding needed to build China's cleantech industry, but cannot form a domestic limited partnership in the country (there is simply no law allowing them to do so). They must instead use the foreign-invested venture capital investment enterprise (FIVCIE) route regulated by the 2003 Administration of Foreign-invested Venture Capital Investment Enterprises Provisions (外商投资创业投资企业管理规定). Although the situation is not ideal, it's possible under these regulations for an investor to set up a structure which resembles a limited partnership and then apply for the necessary approvals. But many investors now worry about their pass-through tax status due to apparent conflicts between the PRC Enterprise Income Tax Law (中华人民共和国企业所得税法) and a previous circular which gave FIVCIEs tax relief.