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]
Water Sector Report
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Investment or its sponsoring Departments, accept no responsibility for any errors, omissions or
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standing of any firm, company or individual mentioned.
Table of Contents
CHARACTERISTICS OF MARKET 4
KEY METHODS OF DOING BUSINESS 8
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
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 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.
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 ?
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-
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.
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
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
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
? 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
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
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
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
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
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
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
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
? 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
The major water events in China in 2011:
It is a branch exhibition of Aquatech.
1-3 June 2011, Shanghai
The 12th China International Environmental Protection Exhibition & Conference
- Energy-saving, Pollution Reduction, Harmonious Development
7-10 June 2011, Beijing
Web site: www.chinaenvironment.org
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
Water Expo China
It is the only exhibition initiated by the Ministry of Water Resources.
13-15 Oct 2011, Beijing
Water China and PVP China
It is one of the biggest events in water sector in South China.
March 2012, Guangzhou
Water ? China
UKTI China Contacts
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
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
Head of the Trade / Senior Trade Officer
British Consulate General Chongqing
Tel: +86 23 6369 1507
Fax: +86 23 6369 1525