SecProbe.io

CORRESP
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filename1.htm

January
11, 2019

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

Office
of Consumer Products

    Re:
    China
    Recycling Energy Corporation

    Form
    10-K for the Fiscal Year Ended December 31, 2017

    Filed
    April 13, 2018

    Response
    Dated October 9, 2018

    File
    No. 1-34625

Dear
Mr. Thompson:

China
Recycling Energy Corporation (“CREG” or the “Company” and sometimes referred to as “we” or
“our”) is filing a response to the SEC Comment Letter, dated December 4, 2018 (the “Comment Letter”),
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 numbers, as well as the text of the comments, set forth
in the Comment Letter followed by our responses thereto.

Item
8. Financial Statements and Supplementary Data

1.
Organization and Description of Business

Erdos
TCH – Joint Venture, page F-6

1.
We reviewed your response to comment 1. We object to your accounting for this modification. You elected to estimate variable lease
payments and include them in your calculation of minimum lease payments, which directly contradicts the definition of minimum
lease payments in ASC 840. Please revise your financial statements accordingly.

Response:

We
agree the variable lease payments are not minimum lease payments as defined in ASC 840. However, we could not find the alternative
accounting treatment that would be appropriate for our situation. We do not believe that this can be an operating lease because
it still has a bargain purchase option.  It is not a direct financing lease as it has dealer's profit, so it is still a sales-type
lease, in our opinion.

The
below table is the lease income collections quarter-by-quarter.  It is not clear to us whether CREG should not consider the
cash collections for the two quarters in 2016, four quarters in 2017 and three quarters in 2018 in considering if there is any
loss at all. We believe by writing off the receivable it is turning this lease as modified into an operating lease.  If that
event, it is also not clear to us whether CREG should reinstate the related asset and depreciate it.

    Lease income
    Actual amount
    Estimated amount

    May 2016 and June 2016
      1,287,849
      -

    Quarter ended September 30, 2016
      2,003,859
      2,160,605

    Quarter ended December 31, 2016
      1,902,841
      1,973,050

    Quarter ended March 31, 2017
      2,072,107
      1,742,641

    Quarter ended June 30, 2017
      1,799,010
      1,882,222

    Quarter ended September 30, 2017
      1,962,434
      2,024,717

    Quarter ended December 31, 2017
      1,752,320
      2,042,607

    Quarter ended March 31, 2018
      1,664,712
      1,521,228

    Quarter ended June 30, 2018
      1,570,163
      2,116,352

    Quarter ended September 30, 2018
      1,389,409
      1,986,580

Excluding
the June 2016 quarter, the actual amounts collected totaled $16,117,000 for nine quarters (from the quarter ending September 30,
2016 through the quarter ending September 30, 2018), as compared to the estimated collections for these quarters totaled $17,450,000;
a $1,333,000 difference, or 7.6%.

The
management estimated the future payment based on the following factors:

 1. The
                                         management compared the estimated future payment with actual amounts from the prior month,
                                         and with the actual amounts from same period of the prior year.

 2. The
                                         management communicated with the system operator, to understand if any things occurred
                                         or would likely occur to affect recent electricity generation.

 3. From
                                         the company level, the management reviewed operations to see if anything or any decision
                                         or operation plan affected or would affect the actual electricity generation.

 4. The
                                         management checked to see if any other external factors affected or will affect the actual
                                         electricity generation.

If
we take a loss in the period of modification by writing off the $57.59 million of net lease receivables and then subsequently
record the collection of principal and interest from the leases as income, it would violate two accounting principles: the
matching concept and the fact accounting estimates are inherent in the preparation of financial statements.  We believe the
financial statements would be misleading.

In
addition, ASC 450-20-05-2a lists collectability of receivables as a loss contingency. ASC 450-20-05-5 requires a probability threshold
for the recognition of a loss contingency and the amount of loss be reasonable estimable. ASC 450-20-25-2 requires an indication
that an asset has been impaired and the amount of loss can be reasonably estimated. ASC 450-20-30-1 requires recording the best
estimate of loss or the minimum loss in a range. The Company’s analysis does not indicate a loss has been incurred as the
estimated collections are approximately the same as the carrying value of the lease receivable. As of September 30, 2018, the
estimated total future payment collection is $57.54 million, the Company believes it is sufficient future estimated collections
to support the net investment receivable.

    2

Below
is the impact to the Company’s consolidated financial statements for the quarter ended and as of June 30, 2016, for the
quarter ended and as of September 30, 2016, and for the quarter ended and as of December 31, 2016, if the Company wrote off the
net investment receivable at the lease term modification date and started to record the principal and interest as contingent lease
income based on actual electricity generated:

    Three months
 ended,

June 30,
 2016
    Three months
 ended,

September 30,
 2016
    Three months
 ended,

December 31,
 2016

    Net income (loss) as previously stated
      2,347,926
      536,839
      (1,150,620 )

    Write-off of lease receivable
      57,585,543
      -
      -

    Contingent lease income from actual electricity generated
      1,287,849
      2,003,859
      1,902,841

    Reduction in deferred tax liability
      6,208,518
      -
      -

    Net income (loss) if restated
      (50,400,677 )
      2,330,874
      4,567,885

If
you have any further comments or require any further information or if any questions should arise in connection with this submission,
please call Mr. Jeffrey Li at (202) 298-1735 or Ms. Chelsea Anderson at (206) 816-1312 at Garvey Schubert Barer.

    Very
    truly yours,

    /s/
    Guohua     Ku

    Guohua
    Ku

    Chief
                                         Executive Officer

        China
        Recycle Energy Corporation

    3