CHARACTERISTICS OF MARKET
Since September of 2003, China fully opened its urban public utility sector to private, overseas investors. This was to encourage private investment in BOT models. Since 1998 pilot projects in some cities have gone ahead, with some of the local governments promising to provide favourable policies on taxation, land, electricity, and credit guarantee. Then in 2002, the State Council banned local governments’ form giving foreign investors fixed-return guarantees on public works projects. The municipal governments thus withdrew their previous promises on investment return. There have been several ongoing contractual disputes since this happened. While the water sector offers enormous opportunities, the market is not without risk.
China’s urban wastewater treatment is not running effectively as a result of insufficient collection of wastewater treatment fee, short/lack of transmission pipelines, and ineffective management. Particularly, rapid industrialisation and urbanisation have increased demand for clean water and wastewater treatment, which is essential to market development, even thought it is not easy. In 1999 the central government directed that every municipal city in the country should build sewage facilities. However, by the end of June 2005, 297 cities in China’s 31 provinces and municipalities still do not own wastewater treatment plants. Currently there were still over 50 percent of the wastewater discharged without treated due to lack of investment. A number of the sewage plants were set up but remain idle also due to lack of funds to operate them.
In a speech at the year end 2005, Zhang Yue, the Deputy Director-General of Department of Urban Development, MoC indicated that the central government plans to double the country’s sewage treatment capability in next 5 years, which is likely to bring business opportunities worth Rmb30 billion (around £2 billion). According to the DDG, building/renovating sewage plant and installing/changing pipelines will become two major aspects of sewage treatment capability building.
French company Veolia is perhaps the largest foreign water company in China’s market currently, following its recent announcement on an expansion in Asian market from 2 percent to 10 percent of the company’s global business focus. The company has a presence in almost 20 major cities in China and has invested about USD 800 million in the market. Setting up joint ventures with municipal governments and strategic partnership with big local players could be considered two major aspects that have contributed to the companies’ achievements.
There are two Ministries who are involved in the management of water at the national level: The Ministry of Water Resources (MWR) and Ministry of Construction (MOC). The MWR is mainly responsible for river basin management, reservoirs and rural water supply, and water supply to some of China’s smaller cities. The MOC is responsible for urban water facilities and wastewater treatment. In addition to these two ministries, the State Environmental Protection Administration (SEPA) formulates and enforces the implementation of rules and regulations on water pollution control. SEPA is a ministerial-level authority directly under the State Council responsible for the environmental protection in China, In recent years, Water Authorities have been set up in a number of counties / cities (above 60 percent of the total) to integrate the supervision of all water functions for the city. However the Ministries themselves still remain divided with little communication between each other. Municipal government is the major decision-maker on specific water project in local markets.
