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    Unassociated Document

    McKenna
Long & Aldridge LLP

    Suite
5300

    303
Peachtree Street

    Atlanta,
Georgia 30308

                January 6, 2010

    Via
EDGAR

    United
States Securities and Exchange Commission

    Division
of Corporation Finance

    100 F
Street, NE

    Washington,
D.C.  20549-0405

    Attn:     Ta
Tanisha Meadows, Staff Accountant

              Re:

              China
      Recycling Energy Corporation

              Item
      4.01 Form 8-K

              Filed
      August 18, 2009

              File
      No. 0-12536

    Ladies
and Gentlemen:

    We are
counsel to the above-referenced company, China Recycling Energy Corporation
(“CREG” or the “Company”) and are filing this response to your comment letter of
August 20, 2009 with respect to the above-referenced filing on Form 8-K on
CREG’s behalf.

    First,
let me reiterate our apologies for the late response.  As I indicated
in our telephone conversation, unfortunately, this comment letter was forwarded
to the Company’s offices in China and not forwarded to the appropriate officer’s
attention until very recently.  The Company’s responses to the
comments in that letter are set forth below.

     Item 4.01 8-K Filed August
18, 2009

              Comment
      1.

              Please
      state whether Deloitte resigned, declined to stand for re-election or was
      dismissed and the date thereof.  Refer to paragraph (a)(1)(i) of
      Item 304 of Regulation S-K.

    Response:

    As
indicated in the above-referenced 8-K, the Company was in the process of
transitioning the responsibilities for independent audit services to Deloitte
from and after the May 5, 2009 announcement until August 11,
2009.  When it became apparent that the transition would not be
completed soon enough to file timely the Company’s quarterly report on Form 10-Q
for the quarter ended June 30, 2009, the Company decided to have the review of
that Form 10-Q conducted by its previous and present audit firm, GPKM (which had
been working with Deloitte throughout the transition period), and to delay the
completion of the transition to Deloitte until after filing the second quarter
10-Q.  On August 11, 2009 the Company filed an 8-K to that
effect.  Deloitte responded with correspondence indicating it
considered the use of GPKM through the filing of the June 30, 2009 10-Q to be
“inconsistent with the engagement letter of May 5, 2009,” and, therefore, that
Deloitte had been dismissed.  Deloitte forwarded to the Company (copy
to PCAOB) a letter dated August 12, 2009 informing the Company that “the
client-auditor relationship…has ceased.”  The Company decided to
accept Deloitte’s interpretation and reaffirmed its relationship with GPKM on
August 12, 2009.

    While the
Company took no active steps to dismiss Deloitte, it has accepted Deloitte’s
interpretation of the events and treated matters accordingly for reporting
purposes.

      United
States Securities and Exchange Commission

      January
6, 2010

      Page
2

              Comment
      2.

              Please
      clarify your description of the nature of the disagreements with Deloitte
      as required by item (A) of paragraph (a)(1)(iv) of Item 304 of Regulation
      S-K.  For example, describe the actual disagreement in
      accounting for the transactions including the positions taken by Deloitte
      and management.

    Response:

    In the
Company’s 8-K filed August 18, 2009, the Company identified five topics with
which there had been disagreement with Deloitte with respect to matters of
accounting treatment.  The disclosure of August 18 may have suggested
a level of disagreement that in fact did not exist.  As is always the
case in a transition from one auditor to another, the Company and both audit
firms reviewed prior filings and financial statements.  In the course
of this review, Deloitte identified the five topics, described in the August 18,
2009 8-K.  These topics had been the subject of ongoing discussions
between the Company, Deloitte and GPKM and remained such on August 12, 2009, and
the Company’s expectation, until receipt of the Deloitte correspondence, was
that these discussions would continue until agreement had been reached and
whatever restatement, if any, was required was prepared and filed.  At
no point did the discussions rise to the level of a disagreement, as described
in paragraph (a)(1)(iv) of Item 304 of Regulation S-K, or a reportable event, as
described in paragraph (a)(1)(v) of Item 304.   In the
correspondence we referenced above, Deloitte indicated only that it believed
“the Company has a complete understanding of the potential misstatements that we
were discussing with respect to the Company’s 10-K’s for the years ended
December 31, 2007 and 2008 in respects of prior accounting for revenue
recognition, issuance of convertible notes and stock-based
compensation.  Those discussions were not brought to resolution by the
date of [our
dismissal.]”    (brackets
supplied)

    As you
will probably have observed, the Company and GPKM continued their review after
August 12, 2009, and on August 19, 2009 filed an 8-K under Item 402 of that form
indicating that a restatement was being prepared.  The restatement was
filed on September 28, 2009.

    As the
topics were still under discussion at the time of the Company’s decision to
continue its relationship with GPKM as outside independent auditors through the
period of the second quarter ending June 30, 2009, we can only describe the
matters of discussion as they existed at the time of Deloitte’s determination
that it had been dismissed on August 12, 2009.  Each of these items
was identified in the Form 8-K filed on August 18, 2009.  Each was
discussed by the Board of Directors of the Company and the Board of Directors
discussed these matters with Deloitte.  Each was also a matter of
discussion with GPKM, which is both the predecessor and successor accounting
firm.  These discussions with both firms continued throughout the
period of May 5, 2009 to August 12, 2009.  The positions are reflected
as follows:

      United
States Securities and Exchange Commission

      January
6, 2010

      Page
3

    1.           2007
sales-type leases:  As the Company understood matters on August 12,
2009, the Company and Deloitte differed over the appropriate interest rate to be
applied as a discount rate to the stream of revenue to be received under its
sales-type leases and over the method to be employed to determine both the size
of the profit margin and when the sale would be recognized.  The
method Deloitte was suggesting for consideration utilized a derivation of the
Company’s cost of capital which resulted in a negative margin in the case of one
lease and a margin of approximately 60% in the other – neither of which
suggested a reasonable profit had the systems been sold.  In addition,
the assumed cost of capital used by the consultant was not based upon the
Company’s actual historical cost of capital.  Finally, to use the
concept of cost of capital in this analysis is to import a concept applicable to
a lessee, not to a lessor, which is CREG ‘s role in the
transaction.  The Company was therefore concerned that this treatment
would be inaccurate.  At August 12, 2009, Deloitte had not taken a
position and it was the Company’s  understanding that Deloitte was
considering this concern of the Company.

    2.           2008
sales-type lease:  As the Company understood matters on August 12,
2009, the Company and Deloitte differed as to whether the Company needed a
minimum guarantee provision in the agreement in order to qualify the contract as
a sales-type lease; in any event, the amendment to the agreement made on August
12, 2009 contained such minimum guarantee.

    3.           Volatility
assumption used for November 2007 stock option awards to establish grant date
fair value:  As the Company understood matters on August 12, 2009, the
Company and Deloitte differed over whether the Company was obliged to use the
evaluation determined by a separate evaluation firm employed by the Company to
determine the volatility assumption.  The Company believed the
evaluation firm’s results suggested a lower volatility assumption than was
appropriate and produced values that did not comport with historical stock
prices.  The Company continued to use the 100% volatility assumption
which had previously been employed due to the lack of history with respect to
the subject.

    4.           Cancellation
and subsequent reissuance of stock option awards:  As the Company
understood matters on August 12, 2009, the Company and Deloitte differed over
whether the Company’s intent to reissue accompanied the cancellation at the time
of cancellation.  The Company believed it had no intent at the time of
cancellation, whereas Deloitte believed that technically the later events
reflected an intent to reissue.  In any event, the reissuance was
treated as a modification in the restatement filed by the Company on September
28, 2009.  To the best of the Company’s knowledge, this restatement
reflected the position Deloitte suggested.

    5.           Conversion
feature of convertible note:  As the Company understood matters on
August 12, 2009, the Company and Deloitte were discussing the proper treatment
of the unamortized amount of the beneficial conversion feature recognized by the
Company upon issuance in 2007 of the convertible note.  Deloitte had
not taken a position with respect to the unamortized beneficial conversion
feature.  To the best of the Company’s knowledge, the restatement
filed by the Company on September 28, 2009 reflects the discussions with
Deloitte.

    Under
these circumstances, we suggest the disclosure in the August 18, 2009 8-K,
agreed to by Deloitte in its letter of August 19, 2009, satisfied the
requirements of Item 304 of Regulation S-K and, hence, of Item 4.01 of Form
8-K.  That is, since the topics discussed in the 8-K of August 18 were
still in discussion and, with respect to certain matters, the Company’s later
restatement of positions in the financial restatements incorporated the matters
raised by Deloitte, at least as the Company understood them on August 12, 2009,
we respectfully suggest a further amendment of the 8-K is both unnecessary and
perhaps inappropriate.

      United
States Securities and Exchange Commission

      January
6, 2010

      Page
4

              Comment
      3.

              We
      note that the Board of Directors approved the engagement of GPKM on August
      13, 2009.  Please disclose the date that you actually engaged
      GPKM.  Otherwise, please acknowledge your obligation to file a
      current report on  Form 8-K and provide the disclosures required
      by paragraph (a)(2) of Item 304 of Regulation S-K when you engage a new
      independent accountant.

    Response:

    The
Company engaged GPKM to provide the services of independent auditor for the year
2009 on August 12, 2009.  This engagement was ratified by the Board of
Directors on August 13, 2009.  Inasmuch as GPKM had been the Company’s
independent auditors for prior periods and continued to undertake and complete
the review for both the first and second quarters of 2009, the Company did not
perceive the formal engagement of GPKM on August 12, 2009 as the engagement of a
new independent audit firm; however, technically it may have
been.  Consequently, we respectfully suggest that under these
circumstances no further 8-K be required; paragraph (a)(2) of Item 304 is
inapplicable; and GPKM has in fact been the independent auditor for all
financial reports covered by that paragraph.

              Comment
      4.

              Please
      file an updated letter from Deloitte stating whether the firm agrees with
      the statements made in any amendment to the filing and, if not, stating
      the respects in which the firm does not
agree.

    Response:

    Inasmuch as it is our desire to discuss
further with you the content of our response to Comment 2, if further discussion
is necessary, prior to determining that an amendment to the 8-K is required, we
respectfully request that we defer the filing of any updated letter from
Deloitte until it has been determined that the Company will need to file an
amended 8-K.

              * *
      * *

    The Company acknowledges
that:

              ·

              the Company is responsible for the
      adequacy and accuracy of the disclosure in the filings reviewed by the
      Staff;

              ·

              Staff comments or changes to
      disclosure in response to Staff comments in the filings
      reviewed by the Staff do not foreclose the
      Commission from taking any action with respect to the filing;
      and

              ·

              the Company may not assert
      Staff comments as a defense in any
      proceeding initiated by the Commission or any person under the federal
      securities laws of the United
States.

      United
States Securities and Exchange Commission

      January
6, 2010

      Page
5

    Should
you have further comments or require further information, or if any questions
should arise in connection with this submission, please call me at (404)
527-4990 or Mr. James Thornton at (404) 527-8118.

                Sincerely,

              /s/ Thomas
      Wardell

                Thomas
      Wardell

    cc:           Tony
Peng, CFO, China Recycling Energy Corp.

    Jeffrey Li, Esq.