Overview of the China Water Market

Sources of water in China
China has the fourth largest water resources in the world with total water resources of approximately 2,533 billion m3 by the end of 2006. Despite this, China’s per capita water resource is only one quarter of the world average.
The distribution of water resource in China is characterised by severe regional and seasonal disparity. In Northern China, the per capita availability of water is only one fifth that of Southern China despite having 65% of the country’s cultivated area and almost half of the country’s population and GDP. Southern China, though in possession of greater water resources is grappling with extensive water pollution. Precipitation is also uneven throughout the year with more than 50% of the annual precipitation concentrated in the three months between July to September giving rise to frequent flood and waterlogging disasters. As a result of these disparities, China continues to face annual water shortages to the tune of 40 billion m3 and severe repercussions on its social and economic development.

Consumption of water in China
Total consumption of water in China by the end of 2006 was approximately 580 billion m3 or per capita consumption of 442 m3. Water consumption is expected to increase with rising industrialisation, urbanisation and standard of living and is expected to reach levels of 700 billion m3 to 800 billion m3 in 2030 if no effective water saving measures are introduced bringing it close to the maximum of usable water resources in China, which is estimated at around 800 billion m3 to 900 billion m3 in 2030.

The largest user of water in China is still the agriculture sector accounting for 63.2% of total consumption in 2006. However the agriculture sector’s proportion of total water consumption has been decreasing since 2000 due to increases in the industry and residential water sectors.

Quality of water supply in China
There are seven major water bodies in China; namely Yangtze River, Pearl River, Yellow River, Huai River, Hai River, Liao River and Songhua River. Although the water quality in these seven major water bodies had been gradually improving over the years, the water quality level is still far from ideal. As of 2006, less than half of the total water supply is categorised as Grade I-III (suitable for consumption) while 26% of the water is categorised as “inferior to Grade V”. Amongst them, Pearl River and Yangtze River enjoyed good water quality while the Songhua River, Yellow River and Huai River were subject to intermediate pollution. The Liao River and Hai River were considered heavily polluted. The main pollutants are permanganate index, ammonia nitrogen, and petroleum.

Extensive economic growth, low utilisation efficiency and high pollutants discharge has caused severe water pollution in China, which makes clean water resources increasingly scarce. According to a survey conducted by the MWRC on drinking ground water quality of 118 Chinese cities in 2005, close to two thirds of the water in these cities was severely polluted, compared to only 3% that was nearly clean. A burgeoning population and increased rates of urbanisation have also contributed to the problem and in the future these factors along with improving standards of living are expected to increase the intensity of the problem.

Water supply and wastewater treatment market in China
There is acute water pollution in China, particularly groundwater contamination and pollution of coastal seas. About 40% of river water is ranked as poor by domestic standards and between 80%-90% of untreated water still flows back into the rivers and lakes. The percentage of the total population in China connected to the water network and with access to improved sanitation is well below world average. In 2005, the total wastewater discharge in China was approximately 52.5 billion tonnes and is growing at a rate of 5% per year.

The water supply and wastewater management sector has been a priority for the Chinese environmental authorities in recent years. This is evident from the fact that out of the total environmental investment in pollution treatment projects in China since 1999, the proportion on water supply and wastewater treatment projects has been the largest and in the range of 40%-50%. The total government investment completed in 2005 on wastewater treatment was approximately RMB13.4 billion. However, despite the large investment made in this area, one third of the cities in China are still without wastewater treatment plants and with the increasing rate of industrialisation and urbanisation, the need for greater investment in this sector will continue to remain a priority.

Growing water consumption and increasingly severe water shortages in China have prompted both the government and industries to pay closer attention to wastewater reclamation. Technology advances have made water reclamation feasible and with the lower price of reused water as compared to water from a municipal water supply plant, ratio of industrial reused water usage is expected to increase.

According to the MCC, the total investment requirements of the water supply and wastewater treatment industry in China is estimated at RMB1,000 billion from 2006-2010, which will exceed the estimated government spending in this sector. The shortfall is expected to come from private capital investments. The following shows the distribution of water investment requirements in China from 2006-2010: