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CORRESP
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    Unassociated Document

    December
8, 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. 1-34625

    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 November 5, 2010 with respect to the
above-referenced filings on CREG’s behalf.  For convenience of
reference, we have included in this response letter the same captions and
paragraph number, as well as the text of the comment, from your comment letter
followed by our response.

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

    Item 8.  Financial
Statements and Supplementary Data, page 26

    Report of Independent
Registered Public Accounting Firm, page 26

              1.

              We
      reviewed your response to comment two in our letter dated September 22,
      2010.  Please confirm that you intend to include the conformed
      signature of your independent accountant in the amendment you intend to
      file upon conclusion of our review.

    United
States Securities and Exchange Commission

      December
8, 2010

      Page
2

    Response:

    We
confirm that the Company will include the conformed signature of its independent
accountants in the amendment to be filed upon conclusion of the
review.

    Consolidated Statements of
Cash Flows, page 30

              2.

              We
      reviewed your response, along with the analysis provided in the appendix,
      to comment three in our letter dated September 22, 2010.  We
      acknowledge the guidance in ASC 230-10-45-22 that certain cash receipts
      and payments may have aspects of more than one class of cash flows, and
      that the appropriate cash flow classification should depend on the
      activity that is likely to be the predominate source of cash
      flows.  As such, it appears that the construction costs of power
      generating systems and the related proceeds from the sale of these systems
      should be consistently presented as either operating or investing
      activities dependent on the predominant source of cash
      flows.  Please tell us how you are applying the referenced
      guidance in determining whether cash flows from the
      acquisition/construction and sale of power generation systems should be
      classified as operating or investing activities.  In your
      response, please address the following questions with respect to the
      consolidated statement of cash flows provided in the
    appendix:

              ·

              We
      note that the increase in construction in progress is classified in cash
      flows from operating activities while principal collections on sales type
      leases are classified in cash flows from investing
      activities.  Please tell us your basis in GAAP for these cash
      flow classifications in light of the guidance in ASC 230-10-
      45-22.

              ·

              We
      note that sales of systems are classified as cash outflows from investing
      activities in the initial investment in sales type lease line
      item.  Please tell us why the sale of systems results in cash
      outflows.

              ·

              It
      seems as though sales of power generating systems net of the costs of
      systems subject to sales and lease back arrangements represent non-cash
      income and expense.  If you consider construction expenditures
      and collection of principal on sales type leases as investing cash flows,
      please tell us why you should not present gross profit from the sale of
      systems as a reduction to cash flows from operating activities in the
      adjustments to reconcile net income (loss) to net cash provided by
      operating activities.

                Response:

              ·

              After
      reviewing ASC 230-10-45-22, we have classified cash flow from construction
      in progress as cash flow operating activities because we concluded that
      construction of energy saving systems is like the production of inventory
      in a manufacturing environment.  We do not have sales lease back
      type arrangements but the sales type leases of terms of 15 to 20 years;
      therefore, we concluded these cash inflows from collections are
      appropriately classified as cash flows from investing activities as they
      are received.

      United
States Securities and Exchange Commission

        December
8, 2010

        Page
3

              ·

              Sales
      of systems result in an increase in receivables from sales type leases.
      This is similar to making an installment loan. The lease receivable will
      be collected over 15-20 years; therefore, we have concluded a cash outflow
      should be classified as investing cash flow.  Similarly,
      principal collections are classified as investing cash
      inflow.  The sale of systems results in an increase in assets
      and is, consequently, treated as a cash
outflow.

              ·

              We
      consider construction expenditure to be operating cash flows as described
      in the paragraph above.  Gross profit is included in lease
      receivables like accounts receivable, which includes gross profit on
      sales. Therefore, we have concluded that gross profit from sales of
      systems should not be an adjustment to cash provided by operating
      activities.

    Notes to Consolidated
Financial Statements, page 31

    Note
19.  Stock-Based Compensation, page 47

              3.

              We
      reviewed your response to comment six in our letter dated September 22,
      2010.  It appears that the guidance at ASC 505-50-30-11 through
      ASC 505-50-30-17 should be followed when determining the measurement date
      for equity instruments issued in a share-based payment transaction with
      nonemployees.  If you disagree, please explain in greater detail
      why such guidance is not applicable.  Given this guidance, as
      previously requested, please tell us in more detail the basis for your
      determination that the measurement date for the warrants issued to
      non-employees was the same as the grant date.  Refer to the
      guidance in ASC 505-50-30-11 through ASC 505-50-30-17 and discuss why you
      believe:  (i) performance was complete on the grant date or (ii)
      a performance commitment to earn the equity instruments was probable on
      the grant date because of sufficiently large disincentives for
      nonperformance.  With respect to the latter, please explain in
      detail the sufficiently large disincentives for
      nonperformance.

    Response:

    The
Company believes that as of the grant date it was more likely than not the
consultant would perform the service.  The warrants became exercisable
nine months from the effective date of the Investor Relations Agreement pursuant
to which they were issued.  Under that Agreement, the issuance of
warrants was irrevocable and the Company agreed to take no action to cause the
warrants to become void or revoked or their issuance to be otherwise
terminated.  Hence, the warrants are considered earned upon execution
of the Investor Relations Agreement.  Therefore, in accordance with
ASC 450-20-25, the transaction should be recorded on the grant date. The Company
also believes that not to recognize the expense as the services are performed is
misleading.  Given that a date must be chosen, we feel the grant date most
accurately reflects the economics of the transaction.  Further, EITF 96-18
ASC 505-50-30-11 through ASC 505-50-30-17 criteria appear inconsistent with
ASC 450-20-25 criteria for liability recognition, i.e. it is probable a
liability had been incurred and the amount was reasonably estimable.  ASC
450-20-25 is derived from a higher-order accounting rule than ASC 505-50-30, as
per ASU No. 2009-01, and therefore we have applied ASC
450-20-25.

          United
States Securities and Exchange Commission

            December
8, 2010

            Page
4

    The
Company believes we accounted for the transaction in accordance with its
substance. The alternative was to record the transaction after completion of
performance as there was no large disincentive to not perform. Performance would
be completed after the expiration of one year. Recording the expense after the
services are performed does not make economic sense and would attribute the
expense to improper periods.

    Item 9A.  Controls
and Procedures, page 51

    Internal Controls over
Financial Reporting, page 51

              4.

              We
      note that you conduct substantially all of your operations outside of the
      United States.  In order to enhance our understanding of how you
      prepare your financial statements and assess your internal control over
      financial reporting, we ask that you provide us with the following
      information:

              ·

              In
      connection with your process to determine whether your internal control
      over financial reporting was effective, please describe whether and how
      you considered controls to address financial reporting risks that are
      relevant to all locations where you have
  operations.

              ·

              If
      you have an internal audit function, please describe it and explain how,
      if at all, that function impacted your evaluation of your internal control
      over financial reporting.

              ·

              If
      you maintain your books and records in accordance with U.S. GAAP, describe
      the controls you maintain to ensure that the activities you conduct and
      the transactions you consummate are recorded in accordance with U.S.
      GAAP.

              ·

              If
      you do not maintain your books and records in accordance with U.S. GAAP,
      tell us what basis of accounting you use and describe the process you go
      through to convert your books and records to U.S. GAAP for SEC
      reporting.  Describe the controls you maintain to ensure that
      you have made all necessary and appropriate adjustments in your
      conversions and disclosures.

    Response:

    The
Company and all its subsidiaries have financial departments equipped with
qualified financial professionals. We have established accounting polices and
processes which cover all our businesses.  We also have an “accounting
verifier” as a part of the process:  a professional reviews and
verifies every transaction for legality and compliance and original documents
for their legality and completeness.  According to the policy
regarding authority for approval, for each cash inflow and outflow, the handling
personnel fill out a required form, which must be signed by the department head,
accountant, financial manager, the “accounting verifier” and the vice president
in charge or the president to minimize any possible financial
risks.

          United
States Securities and Exchange Commission

            December
8, 2010

            Page
5

    Although
the Company is a small reporting company exempted from SOX404(b) requirements
according to the Dodd Frank Wall Street Reform Act passed this year, we believe
the requirement is very helpful for the Company to improve its internal control.
Therefore, the Company organized professionals to improve and standardize the
Company’s internal control.

    The
Company’s operating subsidiaries, Huahong New Energy Technology Co., Ltd.
(“Huahong”) and Shanghai TCH, Shanghai TCH’s subsidiaries Xi’an TCH Energy Tech
Co., Ltd. (“Xi’an TCH”) and Xingtai Huaxin Energy Tech Co., Ltd. (“Huaxin”), and
Xi’an TCH’s subsidiary Erdos TCH Energy Saving Development Co., Ltd, maintain
their books and records in accordance with accounting standards generally
accepted in the People’s Republic of China (“PRC GAAP”); its financial
statements are converted to U.S. GAAP for financial statement reporting purposes
on a quarterly basis.  The Company provides its internally generated
financial statements and related supporting schedules prepared under PRC GAAP in
Renminbi Yuan (“RMB”) to the Company’s contracted U.S. certified public
accountant (the “Company CPA”), who is unrelated to the Company’s independent
registered public accounting firm, for conversion and consolidation. The
Company’s CPA then prepares the Company’s consolidated financial statements and
footnotes under U.S. GAAP in US dollars by
preparing:  adjusting/converting entries for the purpose of converting
the financial statements from PRC GAAP to U.S. GAAP; a consolidating financial
statements worksheet and related schedules; and footnote disclosures with
related schedules and worksheets to support the numbers disclosed in the
footnote, using the Thomson Reuters Disclosure Check List as
guidance.  The Company’s CPA then provides her work to the Company’s
management and its auditor for review/audit, answers any questions raised by the
auditor or management and posts additional review/audit entries from the
auditor, if necessary.  Once all comments and issues are cleared with
confirmation from the Company’s auditor, the financial statements are provided
to the Company’s board of directors for review and approval prior to
filing.

              5.

              We
      would like to understand more about the background of the people who are
      primarily responsible for preparing and supervising the preparation of
      your financial statements and evaluating the effectiveness of your
      internal control over financial reporting and their knowledge of U.S. GAAP
      and SEC rules and regulations.  Do not identify people by name,
      but for each person, please tell
us:

              ·

              what
      role he or she takes in preparing your financial statements and evaluating
      the effectiveness of your internal
control;

              ·

              what
      relevant education and ongoing training he or she has had relating to U.S.
      GAAP;

              ·

              the
      nature of his or her contractual or other relationship to
    you;

        United
States Securities and Exchange Commission

          December
8, 2010

          Page
6

              ·

              whether
      he or she holds and maintains any professional designations such as
      Certified Public Accountant (U.S.) or Certified Management Accountant;
      and

              ·

              about
      his or her professional experience, including experience in preparing
      and/or auditing financial statements prepared in accordance with U.S. GAAP
      and evaluating effectiveness of internal control over financial
      reporting.

    Response:

    The
Company’s businesses in China are accounted for and prepared for financial
reports according to Chinese GAAP.  For each reporting period, the
Company uses U.S. accounting firm to prepare financial reports under US GAAP
based upon financial reports of Chinese GAAP.

    1.  CFO---
is responsible for reviewing the financial reports under US GAAP, supervising
the financial activities of the Company and designing and supervising the
designing of internal
control over financial reporting.  The CFO ensures the
financial statements, and other financial information, filed by the Company