SecProbe.io

CORRESP
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January 14, 2013

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

    Tony Watson

    Re:
    China Recycling Energy Corporation

    Form 10-K for Fiscal Year Ended December 31, 2011

    File No. 001-34625

Dear Mr. Thompson:

On behalf of our client,
China Recycling Energy Corporation (“CREG” or the “Company” and sometimes referred to as “we”
or “our”), and pursuant to our phone conference on December 28, 2012, this firm is filing a response to the SEC Comment
Letter, dated December 14, 2012, in connection with complying with the issues and outstanding disclosure items set forth therein.
For convenience of reference, we have included, in this response letter, the same caption and paragraph number, as well as the
text of the comment, set forth in your comment letter followed by our response; in addition, for questions containing multiple
questions/comments, we separated our response into subparts.

In
addition, attached to this response letter, for the SEC’s review and comment, is a draft of Amendment No. 1 to the Company’s
Form 10-K for fiscal year ended December 31, 2011, reflecting the changes in disclosure described herein. Upon confirmation
that the attached Form 10-K/A meets the SEC’s satisfaction and approval, the Company will promptly file
Amendment No. 1 to the Company’s Form 10-K for fiscal year ended December 31, 2011 with the SEC.

Form 10-K for Fiscal Year Ended December 31, 2011

Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations, page 33

Liquidity and Capital Resources, page 43

Comment
1.	Please describe how cash is transferred to your PRC subsidiaries, and conversely, how earnings are transferred from
your PRC subsidiaries to the parent company. If applicable, please also describe any restrictions that impact your ability to
transfer cash within the corporate structure, including the nature of restrictions on the net assets of your subsidiaries,
the amount of those net assets and the potential impact on your liquidity.

United States Securities and Exchange Commission

January 14, 2013

Page 2

Response:

A.		Please
describe how cash is transferred to your PRC subsidiaries, and conversely, how earnings are transferred from your PRC subsidiaries
to the parent company.

The Company is able
to transfer cash (U.S. dollars) to its PRC subsidiaries by: (i) investment – increasing the Company’s registered capital
in a PRC subsidiary or (ii) a shareholder loan. Other than as follows, to date, its PRC subsidiaries have not transferred any earnings/cash
to the Company. As reflected in its Form 10-K, the Company’s business is primarily conducted through its subsidiaries. The
Company is a holding company and its material assets consist solely of the ownership interests held in its PRC subsidiaries. The
Company relies on dividends paid by its subsidiaries for its working capital/cash needs, including: (i) the funds necessary to
pay dividends/cash distributions to its shareholders, (ii) to service any debt obligations and (iii) to pay operating expenses.
As a result of PRC laws and regulations (noted below) that require annual appropriations of 10% of after-tax income to be set aside
in a general reserve fund prior to payment of dividends, the Company’s PRC subsidiaries are restricted to that extent, as
well as the others noted below, in their ability to transfer a portion of their net assets to the Company as a dividend.

B.		If
applicable, please also describe any restrictions that impact your ability to transfer cash within the corporate structure, including
the nature of restrictions on the net assets of your subsidiaries, the amount of those net assets and the potential impact on your
liquidity.

	PRC has currency
and capital transfer regulations that require us to comply with regulations for the movement of capital.

With respect to transferring
cash from the Company to its subsidiaries, increasing the Company’s registered capital in a PRC subsidiary requires the pre-approval
of the local commerce department, and a shareholder loan requires a filing with the state administration of foreign exchange or
its local bureau.

With respect to the
payment of dividends:

 i. PRC regulations currently permit the payment of dividends only out of accumulated profits, as determined
in accordance with accounting standards and PRC regulations (an in-depth description of the PRC regulations is set forth below);

 ii. our PRC subsidiaries are required to set aside, at a minimum, 10% of their net income after taxes,
based on PRC accounting standards, each year as statutory surplus reserves until the cumulative amount of such reserves reaches
50% of their registered capital;

 iii. these reserves may not be distributed as cash dividends;

 iv. our PRC subsidiaries may also allocate a portion of their after-tax profits to fund their staff
welfare and bonus funds; except in the event of a liquidation, these funds may also not be distributed to shareholders; as disclosed
in Note 17 of our Form 10-K for fiscal year ended December 31, 2011, the Company does not participate in a Common Welfare Fund;
and

 v. the incurrence of debt, specifically the instruments governing such debt, may restrict a subsidiary’s
ability to pay shareholder dividends or make other cash distributions; as disclosed in our Form 10-K for fiscal year ended December
31, 2011, the Company is subject to covenants and consent requirements (presently, the Company has all consents necessary).

United States Securities and Exchange Commission

January 14, 2013

Page 3

If, for the reasons
noted above, our subsidiaries are unable to pay shareholder dividends and/or make other cash payments to the Company when needed,
the Company’s ability to conduct operations, make investments and/or acquisitions, or undertake other activities requiring
working capital may be materially and adversely affected. However, our operations and business, including investment and/or acquisitions
by our subsidiaries within China, will not be affected as long as the capital is not transferred in or out of the PRC.

PRC Regulations

In accordance with
PRC regulations on Enterprises with Foreign Investment and their articles of association, a foreign-invested enterprise (“FIE”)
that is established in the PRC is required to provide certain statutory reserves, which are appropriated from net profit, as reported
in the FIE’s PRC statutory accounts. FIEs are required to allocate at least 10% of its annual after-tax profit to the surplus
reserve until such reserve has reached 50% of its respective registered capital (based on the FIE’s PRC statutory accounts).
The aforementioned reserves may only be used for specific purposes and may not be distributed as cash dividends. In the event that
the FIE’s statutory accounts are insufficient to satisfy this requirement, the FIE’s shareholders are required to contribute
capital required to satisfy the registered capital requirement. Until such contribution of capital is satisfied, the FIE is not
allowed to repatriate profits to its shareholders, unless otherwise approved by the State Administration of Foreign Exchange. After
satisfaction of this requirement, the remaining funds may be appropriated at the discretion of the FIE’s board of directors.
Our subsidiary, Shanghai TCH, qualifies as an FIE and is therefore subject to the above-mandated regulations on distributable profits.

Additionally, in accordance
with PRC Company Law, a domestic enterprise is required to maintain a surplus reserve of at least 10% of its annual after-tax profit
until such reserve has reached 50% of its respective registered capital based on the enterprise’s PRC statutory accounts.
A domestic enterprise is also required to provide discretionary surplus reserve, at the discretion of the board of directors, from
the profits determined in accordance with the enterprise’s PRC statutory accounts. The aforementioned reserves can only be
used for specific purposes and may not be distributed as cash dividends. Xi’an TCH, Xingtai Huaxin, Huahong, Pingshan Shengda
(dissolved in 2012) and Erdos TCH were established as domestic enterprises; therefore, each is subject to the above-mentioned restrictions
on distributable profits.

As a result of PRC
laws and regulations that require annual appropriations of 10% of after-tax income to be set aside, prior to payment of dividends,
in a general reserve fund, the Company’s PRC subsidiaries are restricted in their ability to transfer a portion of their
net assets to the Company as a dividend or otherwise.

Chart of the Company’s
Statutory Reserve

	Pursuant to PRC
corporate law, effective on January 1, 2006, the Company is now required to maintain a statutory reserve by appropriating from
its after-tax profit before declaration or payment of dividends. The statutory reserve represents restricted retained earnings.
Our restricted and unrestricted retained earnings under US GAAP are set forth below:

United States Securities and Exchange Commission

January 14, 2013

Page 4

    As at December 31,

    2011
    2010

    Unrestricted retained earnings
    $ 34,414,271
    $ 14,812,630

    Restricted retained earnings (surplus reserve fund)
      7,051,843
      5,203,605

    Retained earnings (including surplus reserve fund)
    $ 41,466,114
    $ 20,016,235

Item 9A. Controls and Procedures, page 81

Comment 2.	Please
tell us whether there have been changes in the qualifications of your accounting staff and outside consultants responsible for
the preparation of your financial statements in accordance with US GAAP as set forth in your response letters dated December 8,
2010 (comment 4) and January 31, 2011 (comment 3). For example, please tell us: (i) whether you still engage a US licensed CPA
to assist in the conversion and consolidation of the financial statements of your subsidiaries prepared in accordance with PRC
GAAP to US GAAP and preparation of financial statement footnotes that comply with the disclosure requirements of US GAAP, and if
so, the nature and extent of the involvement of the US CPA in preparing your financial statements in accordance with US GAAP, and
(ii) whether you have added any personnel holding a license to practice public accounting in the US or with education, knowledge
and on-going training in US GAAP and SEC Rules and Regulations together with a summary of that education, knowledge and on-going
training.

Response:

A.	Please
tell us whether there have been changes in the qualifications of your accounting staff and outside consultants responsible for
the preparation of your financial statements in accordance with US GAAP as set forth in your response letters dated December 8,
2010 (comment 4) and January 31, 2011 (comment 3).

	There have been
no material changes in the qualifications of the accounting staff and outside consultants responsible for the preparation of our
financial statements in accordance with US GAAP as set forth in our response letters dated December 8, 2010 (comment 4) and January
31, 2011 (comment 3).

B.		Whether
you still engage a US licensed CPA to assist in the conversion and consolidation of the financial statements of your subsidiaries
prepared in accordance with PRC GAAP to US GAAP and preparation of financial statement footnotes that comply with the disclosure
requirements of US GAAP, and if so, the nature and extent of the involvement of the US CPA in preparing your financial statements
in accordance with US GAAP.

Yes. The Company has
retained, and continues to use, the same outside consultants. In accordance with proper accounting protocols and best practices,
the Company, internally, prepares its financial statements and related supporting schedules and books under PRC GAAP in Renminbi
Yuan (“RMB”) for the Company and each of its subsidiaries and then provides such to the Company’s contracted
U.S. Certified Public Accountant (the “U.S. CPA”), who is unrelated to the Company’s Independent Registered Public
Accounting Firm, for conversion and consolidation. Our U.S. CPA then prepares the Company’s consolidated financial statements
in accordance with U.S. GAAP (translating RMB to USD) and prepares a consolidating financial statements worksheet and related schedules,
as well footnote disclosures with related schedules and worksheets, to support the prepared financials and footnote disclosures.
In connection with the preparation of the aforementioned, the Company’s U.S. CPA uses the Practitioners Publishing Company’s
(“PPC”) Disclosure Check List as guidance. The prepared financials (and related disclosures) are then provided to the
Company’s management and its independent auditor for review and audit; in connection with the review/audit process, our U.S.
CPA answers any questions raised and adjustments/revisions are made as necessary. When the review/audit process is completed, and
all comments and issues cleared, the financials are sent to our Board of Directors and Audit Committee for their review and final
approval prior to the public disclosure (filing) of the financials.

United States Securities and Exchange Commission

January 14, 2013

Page 5

C.		Whether
you have added any personnel holding a license to practice public accounting in the US or with education, knowledge and on-going
training in US GAAP and SEC Rules and Regulations together with a summary of that education, knowledge and on-going training.

	No. However, the
Company is diligent is making sure that all necessary personnel continue on-going training/education in US GAAP and SEC Rules and
Regulations. For example, in March 2011, we hired PricewaterhouseCoopers LLP (Singapore) to give training lessons/course work on
convertible note and sales type lease under US GAAP to our CFO, Vice President (Accounting) and two additional internal accountants,
each of whom completed the course requirements and received the necessary training.

Item 8. Financial Statements and Supplementary Data, page
50

Notes to Consolidated Financial Statements, page 55

Note 2: Summary of Significant Accounting Polices, page
57

Fair Value of Financial Instruments, page 60

Comment
3.	Please tell us your consideration of disclosing the fair value long term debt obligations together with the related carrying
amounts and the methods and significant assumptions used to estimate the fair value of the instruments. Please refer to ASC 825-10-50-10
and 11.

Response:

The following are our
considerations with respect to disclosures of fair value of long-term debt obligations.

As of fiscal year ended
December 31, 2011, the Company’s long term debt obligations consisted of the following: (i) bank loans payable in the amount
of $20.79 million, (ii) trust loans payable in the amount of $31.50 million and (iii) a long term payable for a sale-leaseback
transaction in the amount of $5.00 million.

Fair value measurements/approximations,
for certain financial instruments, are based on what a reporting entity would likely have to pay to transfer the financial obligation
to an entity with a comparable credit rating. Our bank loans and trust loans payable are privately held (i.e., nonpublic) debt;
therefore, pricing inputs are not observable. For this reason, we classified bank loans and trust loans payable as a Level 3 fair
value measurement in the valuation hierarchy.

United States Securities and Exchange Commission

January 14, 2013

Page 6

For each of our long
term debt obligations noted above, we believe the carrying amounts approximate their fair values. The following reasons are supportive
of this determination.

Bank Loans Payables
of $20.79 Million (noncurrent portion)

As of fiscal year ended
December 31, 2011, the Company had three loans with the same Chinese commercial bank with terms of 3, 3 and 4 years, res