Despite having a massive volume of water resources at around 2,831 billion tons, China is one of the world’s most water deficient countries. Its per capita freshwater resource of 2,059 tons is less than a third of global average.

Exacerbating this water shortage is China’s growing demand for water driven by China’s rapid economic development as well as growing and increasingly urbanized population. Between 2010 and 2015, China’s population grew from 1,340.9 million to 1,374.6 million. Frost and Sullivan estimates that by 2020, China’s population will grow to 1,411.2 million. Similarly, from 2010 to 2015 China’s urban population increased from 669.8 million to 771.2 million. China’s urban population will increase to 888.5 million by 2020. Due to economic growth and urbanization, the average income level of Chinese households has also increased from CNY 19,109 in 2010 to CNY 31,195 in 2015. By 2020, the average income level of Chinese households will increase to CNY 44,484.

Widespread water pollution has also contributed to China’s water shortage problem resulting in China’s necessity to exploit more water resources and build more water supply plants to meet its water demand. This combined with the increase in wastewater discharge, has resulted in the growing demand for municipal wastewater treatment and water recycling in China. To tackle the above issues, the PRC government has issued a number of policies and incentives to encourage the development of the municipal water industry, some of which include Action Plan for Water Pollution Prevention and Control (《水污染防治行动计划》) (“Action Plan”) which set the targets on water pollution control and water environment improvement by 2020 and 2030 respectively; and Instructions for the Promotion of Public-Private Partnership (“PPP”) in Water Pollution Prevention (《关于推进水污染防治领域政府和社会资本合作的实施意见》) which is aimed at introducing more private investments in the water industry.

Municipal Water Supply Industry in China

Municipal water supply in China, driven by increase in demand, has increasing steadily in recent years with the supply volume growing from 60.0 billion ton in 2010 to 66.8 billion ton in 2015, representing a CAGR of 2.2%. With rising municipal water demand and further development of lower-tier cities in China, the municipal water supply volume is estimated to retain its current growth trend and grow at a CAGR of 2.2% in the next five years, reaching approximately 74.4 billion ton in 2020.

Tap water tariff, which is regulated by the relevant government authority, has increasing steadily in recent years. For residential users, the average tap water tariff has increased from CNY 1.84 per metric ton in 2010 to CNY 2.11 per metric ton in 2015. The average tap water tariff for industrial users has increased from CNY 2.63 per metric ton in 2010 to CNY 3.06 per metric ton in 2015. Tap water tariffs are expected to rise, which should increase the revenue of municipal water supply companies.

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China’s municipal water industry used to be highly fragmented. In recent years, a few integrated and large-scale water companies expanded their business into new regions through mergers and acquisitions. Companies with a good reputation, a brand name, advanced technologies, and good financial health are more likely to benefit from larger operation scales and higher efficiency and to speed up their pace of expansion through the acquisition of smaller operators, leading to a higher concentration rate in this industry.

China’s current water tariff still remains at a relatively low level, and there is still room for tariff increases. In addition, the Chinese government is likely to promote upgrades of existing wastewater treatment plants, which would require further increase in water tariffs.

The 13th Five-year Wastewater Treatment Plan aims at building a better municipal water supply system across the country. Total investment into construction sector and operation sector of the wastewater treatment industry is expected to rise from CNY 0.95 trillion in the 12th Five-Year-Period to CNY 1.26 trillion in the 13th Five-Year-Period.

In addition, the number of municipal wastewater treatment plants may increase in small and medium-sized cities and towns urbanization, and wastewater reuse and reclamation rate will also increase due to the rising need to save costs and protect the environment. Frost & Sullivan estimates that at least 20,000 small wastewater treatment facilities are needed, and that reclaimed water use will continue to grow rapidly.

Municipal Wastewater Treatment Capacity in China

The total capacity of municipal wastewater treatment plants in China has been increasing over the past few years. The total capacity of municipal wastewater treatment plants in China increased from 104.6 million m3 per day in 2009 to 168.4 million m3 per day in 2015. From 2015 to 2020, the capacity of China’s municipal wastewater treatment is expected to rise from 168.4 million m3 per day to 218.0 million m3 per day, at a CAGR of 5.3%. The treatment volume may reach 66.3 billion m3 by 2020.

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