Water Sector Report

An Expert's View about Environmental Technologies in China

Posted on: 15 Mar 2012

The Ministry of Environmental Protection (MEP) was established in 2008 to improve the environmental governance. It is a public recognition that enforcement has become a serious issue.

[Water Sector] ? [China] Sector Report Water Sector Report China Whereas every effort has been made to ensure that the information given herein is accurate, UK Trade & Investment or its sponsoring Departments, accept no responsibility for any errors, omissions or misleading statements in that information and no warranty is given or responsibility is accepted as to the standing of any firm, company or individual mentioned. www.ukti.gov.uk Table of Contents OVERVIEW 3 CHARACTERISTICS OF MARKET 4 OPPORTUNITIES 6 KEY METHODS OF DOING BUSINESS 8 EVENTS 9 CONTACTS 10 OVERVIEW China possesses two of the world's longest rivers, the Yangtze and the Yellow River. Being the sixth richest in the world in terms of water reserves, China?s total water reserve is about 2.8 trillion cubic metres. The geographic distribution of water in China is uneven, with an abundant supply in the south, and regions of scarcity in the north. China has a severe shortage of water supply. China has only a per-capita share of 2200 cubic meters per annum, one quarter of the world's average. By 2030, the figure is likely to drop to 1,760. In a total of 663 cities in China, there are more than 400 which suffer from a water shortage problem, and over 110 cities have a sever water shortage problem. On average, another 6 billion cubic metres of water is needed in these urban areas annually. In addition to the water shortage, there is also the problem of over exploration of groundwater in the north of China, which has resulted in sinking ground in some of the cities in the region. Widespread water contamination of China?s major rivers and lakes remains a big problem. The 2010 pollution census revealed that China?s ?water is far more polluted and its industry is producing far more waste than previously realised.? According to statistics from the Ministry of Environmental Protection, 43.2% of state-monitored rivers were classified as grade 4 or worse in 2010, meaning their water was unsuitable for human consumption. Only the Yangtze and Pearl rivers achieved normal water quality, others, including Liaohe, Huaihe, Huanghe, Songhuajiang and Haihe are heavily polluted with NH3-N, BOD and waste oil. In three major lakes, Taihu, Caohu and Dianchi pollution from total phosphorus, total nitrogen and COD have reached serious levels. The Ministry of Environmental Protection (MEP) was established in 2008 to improve the environmental governance. It is a public recognition that enforcement has become a serious issue. The MEP has to update and revise out-of-date laws & regulations. The revised water law became operational on 1st June, 2008. The MEP will actively intervene with national policymaking, and has a seat at the State. Public awareness of water pollution has been increasing in china. Over the past few years, the current debate and interest is around transparent environmental information released by the government to the public. More foreign experience in environmental protection and treatment is being introduced to both governmental departments and the public. The Beijing Olympic Games and the Expo in Shanghai also played a part in raising public interest, with showcases of rain water collecting, water conservation and water recycling projects. 3 CHARACTERISTICS OF MARKET The key market sectors of the local water market are set out below. Note: The relevant market information and market figures refer to governmental figures, industrial reports and UKTI?s analysis. Water Supply & Demand The annual total water usage in China exceeds 600 billion cubic metres. Water for domestic use annually is around 50 billion m³, 8.5% of the total, industrial and agricultural use around 540 billion cubic metres, 90% of the total, ecological use 9 billion cubic metres, 1.5% of the total. Water shortages will increase over the next few years as a result of water pollution and increased demand from industrial and agricultural sectors. According to the Ministry of Water Resources, water consumption is estimated to reach its peak in 2030, when total consumption is expected to reach around 700-800 billion cubic metres. The annual shortage of water exceeds 6 billion cubic metres. In order to alleviate the water shortage in the northern part of the country, China has commenced an ambitious South-to-North Water Diversion project. The project aims to supply water to Beijing and other key cities in northern China. The use of recycled water is also becoming a key water resource for these cities. The central route project was scheduled for completion by 2010 but has been postponed to 2014 due to environmental concerns and for the expansion of the Danjiangkou reservoir in the route. The complete project is expected to cost $62bn. Waste Water Treatment China?s urban wastewater treatment suffers from a number of problems including insufficient collection of wastewater treatment fees (prices too low and inadequate fee collection systems); shortage or lack of transmission pipelines, and ineffective management. Particularly, rapid industrialisation and urbanisation have increased demand for clean water and wastewater treatment. Construction of environment infrastructure has been accelerated with accumulated increase of sewage treatment capacity across the country over 60 million tons per day. Urban sewage treatment rate went up to over 75% during the 11th Five-Year Plan period. Starting from 1999 the central government directed that every municipal city in the country should build sewage facilities. By the end of 2010, China had built 2,631 wastewater treatment plants with a capacity of 122 million tons per day. In addition, there are 1,849 water treatment plants under construction. Drinking Water Drinking water safety, in rural areas in particular, has been a major concern for the central government. Over 25% of the Chinese urban residents lack access to safe water, and 350 million rural residents accounting for 34% of the total rural population, are still drinking unsafe water. 4 In Chinese rural areas, it usually adopts middle and small sized water supplying systems with branch pipeline networks. The water supplying mainly target to life usage including drinking water in rural areas. The officer of the Ministry of Water Resources (MWR) has concluded some issues they found in rural water supplying: 1. High investment and low incomes. In urban area, the unit investment for water supplying is around RMB2000-3000 per ton. But in rural area, it costs RMB 6000- 7000 per ton. And it?s not easy to collect water fees from rural households. 2. Most of rural pipelines are made of PE plastics. The leakage became the biggest problem through long distance delivering. 3. Inefficiency in operation. MWR officer found it low level in operational staff, low level in management and incapable in most of water plants with equipping water quality measuring & monitoring instrument. To resolve current issues, the government is issuing policies to enforce the management, operation supervision and measuring/monitoring work in rural water supplying. In the meanwhile, it requires the training efforts for the working staff. According the policies and planning, the government will achieve the drinking water safety in rural areas in five years, as well as protecting the water resources, relieving leakage issues and setting up water quality monitoring networks. MWR is responsible for administration on water supplying in rural areas by issuing relevant policies/plans and regulations. For products/technologies introduction and promotion, MWR officer suggests that UK business approach MWR subsidiary organisations such as China Water Science & Research Institute, Drinking Water Safety Centre, and local water design institutes (search MWR web site to find the linkages ? www.mwr.gov.cn). Foreign Involvement in Water Market From 2003, China opened its urban public utility sector to private overseas investors, mainly 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. In 2002, the State Council banned local governments from 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. French company Veolia remains the largest foreign water company in China?s market. The company has a presence in half of the 34 provinces in China and has over 12,000 employees in China. 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 company?s achievements. Suez is another big foreign investor in China?s water market. Suez has built 160 water treatment plants in China through joint- ventures. Overall, foreign investors still account for less than 10% of the total market. This is probably because it can be a struggle to turn a profit from treating dirty water, even as many mid-tier cities need new facilities. 5 Governmental Administrative Bodies There are two Ministries involved in the management of water at the national level: The Ministry of Water Resources (MWR) and Ministry of Housing and Urban/Rural Construction (formerly Ministry of Construction). 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 newly renamed Construction Ministry is responsible for urban water facilities and wastewater treatment. In addition to these two ministries, the Ministry of Environmental Protection (MEP, formerly SEPA) formulates laws and regulations and enforces the implementation of rules and regulations on water pollution control. In recent years, water authorities have been set up in over 60% of all counties and cities to integrate the supervision of all water functions for the city. However the Ministries themselves still remain divided with little communication between each other. The municipal government is the major decision-maker on specific water projects in local markets. OPPORTUNITIES China represents a huge market for water treatment and wastewater treatment technologies and services. UK?s advanced technologies and leading expertise in water sector services are in demand in the following areas: ? Advanced sludge treatment technology and equipment such as sludge reduction and sludge reuse technology, disposal equipment ? Advanced membrane technology and membrane materials ? High efficiency & low cost WWT tech, control systems & instruments; technology and solutions for wastewater treatment from hospitals, paper-making and other industries ? Monitoring equipment for river quality and discharges into water courses ? Pre-treatment and advanced treatment technologies for polluted water ? Biological treatment processes, technologies, organic waste water treatment ? Natural water-body rehabilitation technology ? Network modelling ? Integrated engineering project services including financing, design, equipment ? supply, and operation/management ? Storm water reclamation planning and design Governmental Plans The central government has attached great importance to the water sector. Every year, China's central government issues a No.1 Document, the central government's first 6 policy document of the year, which outlines the top priority the government will focus on for the coming year. Since 2004, China's No 1 Document has focused on agricultural issues. After the droughts and floods last year, China issued the No.1 Document on January 29, 2011 narrowing the focus to water conservation. In this year?s No 1 Document, it said the government will take 10% of the money earned from ?transferring" the rights of farmland and invest it in water infrastructure projects. According to the Ministry of Water Resources, China plans to invest 4 trillion RMB ($610 billion) into water clean-up and rural water infrastructure construction, with the central government and local governments splitting the bill. During the 12th Five-Year Plan (2011-2015) period, the Ministry of Water Resources (MWR) will promote construction of water conservation projects, solve water resources problems related to people's living, implement the strictest water resources management and fully promote reforms in water resources areas. The Ministry of Water Resources (MWR), together with the National Development and Reform Commission (NDRC) and the Ministry of Housing and Urban-Rural Development (mohurd), will work together during the 12th Five-Year Plan for Building a Water Saving Society. Major water- dependent industries, including thermoelectric, petrochemical, and iron and steel, will be required to achieve higher water efficiency levels. 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 or for wastewater treatment. Prices are rising rapidly in those areas that are affected most by water shortages. There are still a number of cities that impose a charge below the actual cost. As a result, some municipal authorities lack the 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, from fear that price hikes might cause unrest. However, the water sector is slowly transferring from a loss-making to profit-making business; the laws and regulations are also slowly coming into force and being enforced. China?s National Development and Reform Commission (NDRC) also released a regulation on the supervision of water pricing in November 2006 to clarify what could and could not be included in the costs of water supply. The regulation suggested that the price of water should be based on the cost of water supply, comprising the costs of tapping water resources, providing running water, constructing pipes and treating sewage. Funding The lack of funding still remains a major problem for China to achieve its goal on wastewater treatment. The central government has proposed investment plans to meet pollution control and allocated funds to key projects. But the regional governmental agencies are expected to foot the bill for the majority of water & wastewater treatment projects. Thus, funding is still not always made available by regional governments for treatment projects. Water projects in China can be profitable albeit with risk. To date, we have seen BOT (build-operate-transfer) used as an investment vehicle for urban water supply, and 7 urban wastewater treatment. But BOT model in China can be problematic with issues of limited legal assurance and poor operation management. In addition, the international financial institutions, e.g. World Bank or Asian Development Bank (ADB), are active in funding water & wastewater treatment projects in the provinces. Such projects use international public bidding processes to purchase equipment and professional consultancy. China needs to spend up to US$20 billion a year to bring its urban water supplies up to standard, according to the World Bank. One example is the Ministry of Water Resources safe drinking water project, using a World Bank loan of USD 250 million. The project covers mainly rural areas in Shaanxi, Gansu, Chongqing, Yunnan, Shanxi, Jiangsu and Beijing. In southern China, Nanning has received USD 100 million loans from World Bank for the wastewater treatment project and the Pearl River basin treatment project has also been supported by funding from the World Bank. KEY METHODS OF DOING BUSINESS The water market in China is big and demand is increasing year by year. Since 2003, China has opened municipal utilities to private and foreign capital in the hope of increasing public services and cutting government management costs. The Government will gradually change its role from direct control to policy maker. The method mostly recommended by the government for investment is Build Operate Transfer (BOT). So far, foreign investors have been involved with a number of BOT projects but they have not been without problems. There have been disputes over ?rate of return? between local governments and foreign companies. Water supply and wastewater treatment projects are planned and managed by localities too and some local governmental departments such as local construction commissions or public utility bureaux. There have been cases to date where promises made to foreign companies cannot be kept because they violated national policy. Without legal documentation that complies with national policy, any potential court case will be difficult and investors stand little chance of winning. When considering doing business in China, it is essential to obtain legal, financial and taxation advice in advance, and extremely helpful to work with a local partner who has experience and connections in the market. A contact list of lawyers and other relevant professional bodies as well as further information on other sectors in the country is available from the British Embassy Beijing and the consulates in Guangzhou, Shanghai, Chongqing, and Hong Kong. NEXT STEPS -HOW UKTI CAN HELP British companies wishing to develop their business in the Chinese market are advised to undertake as much market research and planning as possible in the UK. UKTI?s team in china, with its wide local knowledge and experience, can provide a range of services to British-based companies wishing to grow their business in the Chinese market. This can include: ? Provision of market information ? Validated lists of agents/distributors 8 ? Key market players or potential customers in the Chinese market ? Establishment of interest of such contacts in working with you ? Arranging appointments ? Organise seminars or other events for you to meet contacts and promote your company in the Chinese market This work is available via our Overseas Market Introduction Service (OMIS) a chargeable service which assists British-based companies wishing to enter or expand their business in overseas markets. To find out more about commissioning this work, or accessing other UKTI services and specialist advice, please visit the UKTI website to find contact details for your local UKTI office. EVENTS The major water events in China in 2011: AQUATECH CHINA It is a branch exhibition of Aquatech. 1-3 June 2011, Shanghai Website: http://www.china.aquatechtrade.com CIEPEC 2011 The 12th China International Environmental Protection Exhibition & Conference - Energy-saving, Pollution Reduction, Harmonious Development 7-10 June 2011, Beijing Web site: www.chinaenvironment.org Water 2011 The exhibition covers water treatment, commercial and household water purification, fluid equipment, water supply systems, plumbing pipes, water-saving equipment, etc. 29 June ? 1 July 2011, Shenzhen Website: http://www.waterexpo.org/ Water Expo China It is the only exhibition initiated by the Ministry of Water Resources. 13-15 Oct 2011, Beijing http://www.waterexpo.cn/expo/index.asp Water China and PVP China It is one of the biggest events in water sector in South China. March 2012, Guangzhou Website: http://www.waterchina-gz.com/en/index.htm 9 Water ? China CONTACTS UKTI China Contacts Matthew Downing H Celina Cao ead of Environment, Energy Trade & Investment Manager And Infrastructure Sectors Tel: + 86 10 5192 4308 Tel: + 86 10 5192 4402 Fax: + 86 10 5192 4218 Fax: + 86 10 5192 4218 E-mail: Celina.Cao@fco.gov.uk E-mail: Matthew.Downing@fco.gov.uk Paul Carter Ying Zhang Consul Trade & Investment Trade & Investment Officer British Consulate General Shanghai British Consulate General Shanghai Tel: + 86 21 3279 2022 Tel: +86 21 3279 2027 Fax: + 86 21 6279 7388 Fax: +86 21 6279 7388 Email: Paul.Carter@fco.gov.uk Email: Zhang.Ying@fco.gov.uk Tracy Peng Jacqui Mullen Senior Trade & Investment Officer Consul Trade & Investment British Consulate General Guangzhou British Consulate General Guangzhou Tel: +86 20 8314 3008 Tel: +86 20 8314 3005 Fax: +86 20 8333 6485 Fax: +86 20 8333 6485 Email: Tracy.Peng@fco.gov.uk E-mail: Jacqui.Mullen@fco.gov.uk Helen Zhong Head of the Trade / Senior Trade Officer British Consulate General Chongqing Tel: +86 23 6369 1507 Fax: +86 23 6369 1525 Email: Helen.zhong@fco.gov.uk
Posted: 15 March 2012

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