OPPORTUNITIES

Municipalities have now opened up utility projects to the public. These projects are locally managed. The list of project is obtainable from local government. The water projects in China are profitable albeit with risk. BOT is still immature and relevant laws and policies are not yet completed. The economic development between different areas in China is unbalanced so the selection of a good economic region is as important as selecting a good project to invest in.

It is not easy to export products directly; local partners prefer joint ventures. Some projects that funded by World Bank or ADB can offer opportunities to companies to export their products directly. These kinds of projects use an international public bidding process to purchase equipment.

Eleventh Five-Year Plan

Year 2006 is the beginning of China’s 11th Five-Year Plan, in which water conversation, wastewater treatment, drinking water safety (especially in rural areas) are the key aspects.

The central government is striving to build a ‘water conservation’ society in next 5 years, with special emphasises on Northern region where water shortage is severe. This will tie in with the price / market reform, the national wide installation of IC water metres, and the establishment of reward/penalty mechanism. Beijing has recently issued a water conservation policy that requires water saving and water-recycling facilities to be built in all new property projects. Beijing government plans to see an extensive spread of water saving facilities by 2010 with the recycled water rate reaching over 60 percent. Other municipalities in Northern region have, or are going to issue policies of similar kind. In the meantime, a number of coastal cities are also looking at how to best use seawater for both industrial and drinking purpose.

Drinking water safety, in rural areas in particular, has been a major concern for the central government. By the end of 2004, 323 million people in rural area, which accounts for 34 percent of the total rural population, were still drinking unsafe water. The central government aims to resolve this issue by 2020, with an initial investment of Rmb 4 billion (around £285 million) on rural area infrastructure this year. Municipal governments will manage the actual work that to be carried out in their region, whilst being responsible for another 4 billion (around £285 million) for the financing. The Ministry of Water Resources has submitted an application to World Bank loan for USD 250 million for an infrastructure project in rural areas across seven cities, namely Shannxi, Gansu, Chongqing, Yunnan, Shanxi, Jiangsu, Beijing. The total investment into this project is around USD 3.4 billion.

Last year’s severe Songhua River pollution incident in Northeast China has caused a drinking water cut-off for several days in Har’bin, the capital city of the Heilongjiang Province with a population of more than 3 million. As the result of it, 1.43 billion tons of water needs to be treated in cities along the river basin per year. China will invest RMB 26.6 billion (around £1.9 billion) on the treatment in next 5 years, with the goal to ensure 90 percent of the people drink clean water by year 2010. The investment will focus on 263 projects in the areas, out of which 135 projects in Jilin Province, 125 in Heilongjiang Province, 3 in Inner Mongolia.

The 11th Five-year plan for Environmental Protection has also targeted an increase in sewage treatment rates from the current 45.6 percent to over 60 percent in all cities, with a target of over 70 percent in major cities such as capital cities, tourism centres, etc.

Reform in price and management

Water in China has traditionally been priced well below the actual cost, offering little incentive for the development of water supply and particularly for wastewater treatment industry. Prices are rising rapidly in those areas that are affected most by water shortage. In Beijing for example, water prices have more than doubled since 2002, with an intention to further increase by 2007.

There are still a number of cities that impose a charge that is below the actual cost. As the result, some municipal authorities had no incentive to build new facilities or even to operate existing plants. Though the central government is committed to price reform, they remain reluctant to implement policy across China, as they fear that price hikes might cause unrest. However, the water sector is slowly transferring from loss making to profit-making business now; the laws and regulations are also in a slow progress of being completed and enforced.