The Challenge of Water Shortage Problems in China

According to the United Nations Environmental Program (UNEP), China’s average freshwater availability is between 1,700 and 2,500 cubic meters per person per year. This level of availability has become a “vulnerability” with respect to the global standard, and is also lower than the availability level in the majority of countries. China’s economy has been developing rapidly over the past 30 years and a significant number of natural water resources have been over exploited and polluted courtesy of rapid urbanization and industrialization without proper urban planning. Consequently the water supply has been further tightened while water shortages and pollution have been exacerbated.

Figure1: Global Fresh water availability cubic metres per person and per year, 2007

Source: United Nation Environmental Program

Currently, two-thirds of China’s cities face water shortage issues. Typically the problem occurs in one of three situations: firstly, due to limited water resources; secondly, due to deficiencies in the water supply system; thirdly, due to pollution of water resources. Two decades ago the under supply of water amounted to 30-40 billion cubic metres. In 2012 the under supply amounted to 50-60 billion cubic meters. So the magnitude of water shortages has increased by approximately 60%.

Figure 1, shows that the total annual quantity of fresh water sources in China was between 2,000 and 3,000 billion cubic metres from the year 2000 to 2011, however, the annual national water use has increased steadily since 2003 to reach a total of 608 billion cubic meters in 2011. This is a warning signal to the Chinese authorities that existing water resources will not be enough to accommodate increasing future demand.

Aside from increasing demand for water, another issue is the uneven distribution of water resources. Some provinces and cities have insufficient water resources to meet current demand (see table I). For example in Beijing, Tianjin, Shanghai, and Jiangsu water consumption per capita is already higher than water resources available per capita. The urban population of China has increased rapidly in recent years and the national urbanization rate is higher than 50%. The fast growth rate of water demand in daily life forces has forced a structural change in water use and distribution. In the past, agricultural water use accounted for 80% of total water use, but this proportion has fallen to 60% in recent years. Water use in daily life has increased from 10% to 20%, and industrial water use has increased from 13%-14% to 20%.

Figure 2: National water resource and water usage of China

Table I: Water Resources and Use in Different Chinese Provinces and Cities 2011

Source: National Bureau of Statistics of China

Governmental Policy to Address the Water Shortage Problem

In order to cope with water shortages, the Chinese government has explored new sources of water, increased water charges to discourage excessive consumption and decreed that provincial authorities should strengthen water management. Currently, around 90% of the 52 coastal cities in China are facing water shortage problems in one form or another.

In order to resolve these problems, the National Development and Reform Commission issued a plan for the development of the water desalination industry during the 12^th five-year plan. It has targeted a water desalination capacity of 2.2 million cubic meters per day by 2015.

In response to the central government policy, provincial governments have implemented various measures to restrict water usage and increase water supply. Twenty Chinese provinces and cities, including Jiangsu, Shandong, Beijing, Chongqing, and Guangzhou, have launched water reforms including increased water charges or the implementation of a laddered water charge system. Additionally, Beijing has started making use of reclaimed water technology. The reclaimed water supply has increased from less than 3 tons per year in 2000 to 8 tons per year in 2012.

The Performance of Waste Water Treatment Companies

The value chain of China’s water sector can be divided into three stages. The first stage is the transportation of raw water from the water source to tap water plants. The second stage is tap water supply operation. Finally, the third stage is the collection and treatment of waste water. The top 20 waste water treatment companies operating in China are listed in Table II:

Table II: Top 20 wastewater treatment companies in China

Source: Nomura (2010)

The waste water treatment companies listed on the Shanghai stock market are: Beijing Capital, Zhongshan Public Utilities, Nanhai Development and Wuhan Holdings Ltd, and those listed on the Hong Kong stock market are: China Water Affairs Group, Beijing Enterprise Water, Tianjin Capital Environmental, China Water Industry Group and China Everbright International. Among these companies, Beijing Capital, Beijing Enterprise Water, and Tianjin Capital Environmental process the largest amount of waste water each year.

Table III: Total revenue of waste water treatment companies operating in China

Source: Nomura and Censere

Table IV: Net Profit of waste water treatment companies operating in China

Source: Nomura and Censere

Current Desalination Technology in China

Seawater desalination is an important technology great potential to alleviate the water shortage problem. As mentioned, the central government has set a target to strengthen the country’s desalination capacity. In addition to increased desalination capability, up to 220 million cubic meters per day, a target was set for 70% of processing equipment to be manufactured domestically. It is estimated that this policy will create RMB8.6billion revenue for desalination equipment and material suppliers.

Currently, over 80% of seawater purification projects in China use membrane technology. In an interview in China Daily, Mr. Xu, a representative of the Chinese Academy of Engineering, stated that China’s seawater desalination has made remarkable progress in recent years by using membrane technology.

This technology is more economical than other methods (such as extraction and evaporation) because it consumes less energy. He also commented that seawater desalination has been utilized in China for more than 60 years and that breakthroughs have been made in this industry in the past 10 years.

However, the industry isn’t free from challenges. A representative from China Membrane Industry Association said that the two challenges for the industry’s development are the price gap between desalinated water and tap water, and the energy consumed and pollution generated from the desalination process. Therefore, any new technology that can improve seawater desalination efficiency and effectiveness would be welcome in the Chinese market.

Highlights and Insights

The Chinese government is determined to reform and further enhance its water supply and sewage system. Currently, Beijing Enterprise Water is the largest company with the operation of 101 waste water treatment plants, 20 tap water supply plants, 4 reclaimed water plants and 1 water desalination plant, spread over 25 cities. It is believed that the water management market is continuing to increase in pace with economic and population growth, therefore this is a prime potential market for foreign water management companies, with expertise in this field, and for investors. The Chinese market is large and the local water management technology still lags behind other markets.

The Chinese sewage management market had achieved a capacity of treating 1.5 million tones of waste water daily during the 11^th Five Year Plan (2006-2010). The central government was positive about this result and has further increased the water and waste water treatment market budget to US$4.54 billion in the 12^th Five Year Plan (2011-2015). This is double the amount invested in the 11^th Five Year Plan. This is a good sign for those companies holding advanced technologies in the water management domain. The central government and local water management players also expect that cooperation with foreign experts can enhance their water processing productivity and efficiency.