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CORRESP
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    Unassociated Document

Albany

                  Atlanta

                  Brussels

                  Denver

                  Los
      Angeles

                  THOMAS
      WARDELL

                  Direct
      telephone: (404) 527-4990

                  Direct facsimile: (404) 527-8890

                  www.mckennalong.com

New
      York

                  Philadelphia

                  San
      Diego

                  San
      Francisco

                  Washington,
      DC

                  EMAIL
      ADDRESS

                  twardell@mckennalong.com

    October
12, 2010

    Via EDGAR

    United
States Securities and Exchange Commission

    Division
of Corporation Finance

    100 F
Street, NE

    Washington,
D.C.  20549-0405

    Attn:  William
H. Thompson, Accounting Branch Chief

              Re:

              China
      Recycling Energy Corporation

              Form
      10-K for the Fiscal Year Ended December 31,
2009

              Filed
      March 16, 2010

              Form
      10-Q for the Quarterly Period Ended June 30,
  2010

              Filed
      August 16, 2010

              File
      No. 001-34625

    Dear Mr.
Thompson:

    This firm
is counsel to the above-referenced company, China Recycling Energy Corporation
(“CREG” or the “Company” and sometimes “we” or “our”) and is filing this
response to your comment letter of September 22, 2010 with respect to the
above-referenced filings on CREG’s behalf.

    Form 10-K for the Fiscal
Year Ended December 31, 2009

    Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations, page
15

    Results of Operations, page
22

              Comment
    1.

              We
      reviewed your proposed disclosure in response to comment four in our
      letter dated August 3, 2010.  As previously requested, please
      include a comparative analysis and discussion of the effective tax rate
      for each year presented.  The discussion should describe the
      reasons for changes in the effective tax
rate.

    United
States Securities and Exchange Commission

    October 12, 2010

    Page
2

    Response:    The
Company acknowledges the comment of the Staff.  In future filings the
Company will include disclosure materially like the following with respect to
our effective tax rate for each year presented and will include the reasons for
any changes to our effective tax rates:

    INCOME
TAX EXPENSE.  Income tax expense was $2.95 million for the year ended
December 31, 2009, an increase of $1.32 million compared to $1.63 million for
2008.  The increase was mainly due to the change in income (loss)
before income tax from a $0.59 million loss in 2008 to $13.01 million in income
during 2009; the consolidated effective income tax rates for 2009 and 2008 were
22.7% and (278.3)%, respectively.  The change in the consolidated
effective tax rate was mainly due to a permanent non-tax deductible interest
expense of $5 million resulting from amortization of a beneficial conversion
feature for a convertible note in 2008, which was added back to taxable income
for US income tax return purposes. The income tax rate for our US parent company
was 34% for both 2008 and 2009; the rates for Shanghai TCH were 18% and 20% for
2008 and 2009, respectively.  Xi’an TCH’s income tax rate for both
2008 and 2009 was 15% as a result of its high tech enterprise status that was
approved by the taxing authorities in the PRC.  Xingtai Huaxin’s
effective income tax rate for both 2008 and 2009 was 25%.  Our newly
incorporated subsidiaries – Huahong and Erdos TCH – had effective income tax
rates of 25% for 2009.

    Item 8. Financial Statements
and Supplementary Data, page 26

    Report of Independent
Registered Public Accounting Firm, page 26

              Comment
    2.

              We
      reviewed your response to comment nine in our letter dated August 3,
      2010.  Please confirm to us that you received a signed copy of
      the report issued by your independent accountant and intend to include the
      conformed signature of your independent accountant in future filings
      and/or amendments.

    Response:    The
Company received a signed copy of the report issued by our independent
accountant and will include the conformed signature of the independent
accountant in future filings and/or amendments.

      United
States Securities and Exchange Commission

      October 12, 2010

      Page
3

    Consolidated Statements of
Cash Flows, page 30

              Comment
    3.

              We
      reviewed your response and the analysis provided in the appendix to
      comment 11 in our letter dated August 3, 2010. It appears that you
      reported the profit on sales-type leases as a reduction of cash flows
      from investing activities rather than as a reduction to cash flows
      from operating activities in the adjustments to reconcile net income
      (loss) to net cash provided by operating activities. It also appears that
      you netted cash outflows for construction in progress against
      proceeds from sales-type leases in cash flows from investing
      activities, which resulted in a net cash outflow rather than a cash
      inflow from sales-type leases. Please review your classification
      of cash flows for these items and tell us whether we have interpreted
      your analysis correctly. If our understanding is correct, tell us how
      you would revise your presentation to comply with the guidance in ASC
      230. If our understanding is incorrect, tell us how you classified
      the profit from sales-type leases and why cash flows from your gross
      investment in sales-type leases resulted in a net cash outflow for
      each year presented.

    Response:    The
Staff understanding is not correct.  Profit from sales type leases is
the fair value of the system to be leased, net of cost of goods
sold.  This profit is part of the Company’s net income.  The
Company did not report such profit either as a reduction in cash flows from
investing activities or as a reduction to cash flows from operating activities
in the adjustments to reconcile net income (loss) to net cash provided by
operating activities.  Nor do we believe such reporting is required.
For your ease in reference, we have once again attached to this correspondence a
copy of the cash flow analysis.

    We
revised our cash flow statement to separate cash outflows for construction in
progress from net investment receivable in sales type leases to comply with the
guidance in ASC 230.  Gross investment in sales type leases represents
initial investment in sales type leases.  Principal collected on sales
type leases is now reclassified from initial investment in sales type
leases.  Initial investment in sales type leases represents cash used
in investing activities while collection of principal amount on sales type
leases represents cash provided by investing activities.  This is
considered similar to notes receivable for principal under installment
sales.

    ASC
230-10-55-10 includes an example showing all principal payments under leases as
being investing activities.  Accordingly, the Company treated lease
originations the same way. ASC 230 also acknowledges that a somewhat difficult
classification issue arises for installment sales and purchases of
inventory by an enterprise for which cash inflows or outflows may occur several
years after the date of the transaction.  Those transactions can be viewed
as having aspects of both operating and investing activities.

      United
States Securities and Exchange Commission

      October 12, 2010

      Page
4

    Notes to Consolidated
Financial Statements, page 31

    Note 17. Loan Payable –
Collective Capital Trust Plan, page 44

              Comment
    4.

              We
      reviewed your response to comment 21 in our letter dated August 3, 2010.
      As previously requested, please provide the disclosures required by ASC
      810-10-50-8 through ASC 810-10-50-19 to the extent applicable. In
      addition, please expand your disclosure to describe the terms of the
      agreement to share the benefits from the Clean Development Mechanism
      under the Kyoto Protocol equally with Beijing Trust and to pay the
      management stimulation profit (or incentive benefit) as discussed in Form
      8-K filed December 8, 2009.

    Response:    The
Company did not consolidate Beijing Trust because the Company is not the primary
beneficiary of Beijing Trust.  The Company has adopted FIN 46R, ASC
810, Consolidation, which requires a variable interest entity (VIE) to be
consolidated by a company if that company is subject to a majority of the risk
of loss for the VIE or is entitled to receive a majority of the VIE’s residual
returns.

    Beijing
Trust is:  Beijing International Trust Co. Ltd., previously known as
Beijing International Trust and Investment Corporation Limited incorporated in
October 1984; it is a non-banking financial institution with registered capital
of RMB 1.4 billion.  In determining if Beijing Trust is the VIE of the
Company, the Company considered the following indicators, among
others:

              ·

              The
      Company does not have the right to control and administer the financial
      affairs and daily operations of Beijing Trust and has no right to manage
      and control the assets of Beijing
Trust;

              ·

              The
      Company does not have any voting rights in Beijing Trust and has no right
      to appoint the directors and senior management personnel of Beijing
      Trust;

              ·

              The
      Company will not provide financial support if Beijing Trust requires
      additional funds to maintain its operations and to repay its
      debts;

              ·

              The
      Company could not assume the operating risks of Beijing Trust and would
      not bear any losses or profits from Beijing
  Trust.

    Therefore,
the Company concluded that Beijing Trust is not the VIE of the Company, and the
Company is not the primary beneficiary of Beijing Trust. Accordingly,
disclosures under ASC 810-10-50-8 through ASC 810-10-50-19 are not
required.

    We expect
to include the following disclosure with respect to the sharing of benefits from
the Clean Development Mechanism and the payment of the management incentive
benefit:

    Under the
Clean Development Mechanism ("CDM"), any benefit received will be paid to Erdos
Metallurgy. Under the agreement with Xi’an TCH, Erdos Metallurgy agrees to
deliver to Xi’an TCH 50% of the benefit Erdos Metallurgy receives. Xi’an TCH
agrees to share 50% of the benefit it receives from Erdos Metallurgy with Erdos
TCH. Under the Capital Trust Loan Agreement (the "Loan Agreement") between Erdos
TCH and Beijing Trust, Erdos TCH agrees that 50% of any benefit it receives will
be delivered to Beijing Trust. Pursuant to the Plan, Beijing Trust will
distribute 70% of the CDM benefit it receives to the holders of the category B
trust units. The receipt of any CDM benefit is subject to a process of
evaluation and certification of the project by the CDM Executive Board and is
under the guidance of the Conference of the Parties of the United Nations
Framework Convention on Climate Change. The first stages of the certification
process have been completed successfully.

      United
States Securities and Exchange Commission

      October 12, 2010

      Page
5

    Under the
Loan Agreement, Erdos TCH must pay a management incentive benefit to Beijing
Trust upon maturity of the category A3 and category B trust units in December
2013 if the ratio of Erdos TCH’s profit to its registered capital exceeds a base
amount. If this criterion is met, the amount of the management incentive benefit
is calculated based on a formula tied to Erdos TCH’s net profit and the average
registered capital for the 2012 fiscal year. Under this formula the management
incentive benefit could range between 0% and 100% of the net profit of Erdos TCH
in the 2012 fiscal year.

    The
management incentive benefit was structured to provide an incentive to
management to make the joint venture profitable. Under the Plan, Beijing Trust
will distribute the entire amount of the management incentive benefit it
receives to the holders of the category B trust units. As previously disclosed,
the holders of the category B trust units are the management of Erdos TCH and
Xi’an TCH. Category B trust units receive a lower base interest rate than the
category A trust units but the economic return to the holders of category B
trust units will be enhanced by any management incentive benefit.

    Note 18. Convertible Notes
Payable and Revolving Financing Agreement, page 45

              Comment
    5.

              We
      reviewed your proposed disclosure in response to comment 24 in our letter
      dated August 3, 2010.  Please provide the disclosures required
      by ASC 825-20-50-1b, 825-20-50-1c and 825-20-50-1d or tell us why these
      disclosures are not required.

    Response:    The
Company acknowledges the comment of the Staff and proposes to expand the
disclosures required by ASC 825-20-50-1b, ASC 825-20-50-1c and ASC 825-20-50-1d
as follows:

    The
Company accounts for payment arrangements under a registration rights agreement
in accordance with ASC Topic 825, “Financial Instruments,” which requires that
the contingent obligation to make future payments or otherwise transfer
consideration under a registration payment arrangement, whether issued as a
separate agreement or included as a provision of a financial instrument or other
agreement, be separately recognized and measured in accordance with ASC Topic
450, “Contingencies.

      United
States Securities and Exchange Commission

      October 12, 2010

      Page
6

    The
Company is required to file a registration statement with the SEC upon receiving
a demand notice from a convertible debt holder.  At December 31, 2009
and June 30, 2010 the Company had not received a demand notice from any
holder.

    Under the
registration rights agreement, the Company must file the registration statement
within 90 days of receipt of a demand notice (the “Filing Date”), and the
registration statement must have become effective within 120 days after filing
(the “Effective Date”) or the Company must pay damages to the holders of the
shares to be registered.  The Company must also pay damages if the
registration statement ceases for any reason to remain continuously effective as
to all Registrable Shares for which it is required to be effective, or the
holders are not permitted to utilize the prospectus to resell shares for thirty
(30) consecutive calendar days during any 12-month period.

    The
damages for failure to meet any of these requirements are equal to 1% of the sum
of:

              (x)

              the
      purchase price of the unconverted
notes;

              (y)

              the
      purchase price of shares of Company Common Stock purchased under a related
      agreement; and

              (z)

              the
      conversion price of shares of Common Stock received on conversion of
      notes,

    for each
30 days, or a pro rata portion of such 1% for a period less than 30
days.

    The
damages are liquidated damages and must be paid in cash; the registration rights
agreement does not provide for any alternative payment
arrangement.  The maximum potential amount of consideration,
undiscounted, that the Company could be required to transfer under the
registration payment arrangement cannot exceed 1% of the sum described above in
any thirty (30) calendar day period.

    Note 19. Stock-Based
Compensation, page 47

              Comment
    6.

              We
      reviewed your response to comment 26 in our letter dated August 3, 2010.
      Pleas