China's mouth-watering investment opportunities
Water is a precious resource in short supply. Long-term trends such as population growth, increasing water consumption per person, and pollution are major drivers of water scarcity. This is aggravated by an inadequate water infrastructure. “The world’s most populous country, China, is one of the areas that offer many investment opportunities in water and waste infrastructure,“ says Dieter Küffer, water specialist and portfolio manager at RobecoSAM.
More cities, more demand for water
In China, major drivers of water challenges are continuous urbanization, the insufficient build-up of infrastructure and pollution, says Küffer. “Over the last 30 years, China’s urban population has grown tremendously. In the early 1980s, around 20% of the population lived in cities, against 53% in 2014. As the Chinese government aims to promote economic growth and consumption, urbanization is likely to continue. The urban population is projected to account for 70% of China’s total population within the next 15 years. As a result, urban demand for water is expected to increase by 70% to 100% from 2005 to 20251. Supply is lagging, however. Although China is home to 20% of the world’s population, it only has 7% of the world’s freshwater resources.”
Building up water infrastructure
“All this means that more water distribution networks, sanitation systems and wastewater treatment facilities need to be built, especially because current infrastructure investments have not kept pace with the speed of urbanization,” Küffer explains. As a result, growing demand is benefiting water providers located farther away, which pump more water over longer distances to consumers, and use more sophisticated water treatment technology that enables water recycling.
“China needs to sharply increase its wastewater treatment and waste management capacity to meet the water challenge”
The drawback of China’s economic growth is increasing water pollution. ”The water quality of 61 key lakes and reservoirs was surveyed,” Küffer states. ”40% was graded of very poor quality and not suitable for any human contact2. High concentrations of heavy metals and chemicals compounds are present in both surface and ground water. This is partly due to low treatment rates and wastewater collection efficiency. As a result, the wastewater discharged is not captured and treated before being released back into the natural waterways.”
A government priority
Recognizing the country’s water challenges, the Chinese government has made water one of its priorities. In its 12th Five Year Plan (2011-2015), it has allocated RMB 3.4 trillion to environmental protection, including waste water treatment, water efficiency improvements, and distribution. In addition, it has imposed pollution targets on each province, which will be enforced more vigorously. According to the Chinese government one of the measures in the plan is to increase water pipe networks from 166,000km in 2010 to 325,000 km by 2015 to improve distribution and collection efficiency. Currently around 50% of this target has been met.
Opportunities for investors
The water challenge presents significant opportunities for providers of water and waste water treatment technologies. According to Küffer, one of the growth areas is industrial water treatment - for example in the textile, mining, energy, and petrochemicals industries - which is currently very low in China. ”Companies providing water distribution and wastewater treatment solutions in China are expected to benefit,” Küffer concludes.
1Source: McKinsey Global Institute, 2009
2 Source: Communiqué on Land and Resources of China 2012, Ministry of Environmental Protection