China's stimulus package boosts water desal, recycling

Researchers at Frost & Sullivan say the water treatment industry is going to be one of the biggest beneficiaries of China's plan for RMB 4 trillion ($585 billion) in government spending in 2009 to stimulate the economy.

The government already spent RMB 120 billion in the fourth quarter of 2008, with about 10 percent of the money going to energy saving and ecological projects. This year RMB 350 million, or nearly 9 percent, is planned for ecological projects in Shanghai, Beijing, Qinghai, Guangdong, Jiangxi, Liaoning, Inner Mongolia, Shandong, and Jilin.

Many of those projects are connected to water conditions, stimulating the demand for equipment serving the water and wastewater treatment sectors in China, according to Frost & Sullivan's China consultant of chemicals, material and food, Vivian Chen.

Water shortages in north China are one of the forces are driving the adoption of wastewater recycling and re-use, as well as seawater desalination, she said.

"Compared to some traditional industries such as petrochemicals, the water industry is less impacted by economic fluctuation because of its rigid feature as it belongs to public services and infrastructure construction. Meanwhile, due to political support and market innovation, the industry still expects good growth potential," she said.

Some 400 Chinese cities, including Beijing and Shanghai, have inadequate water supplies. At the end of 2005, only 46 percent of municipal wastewater was being treated and nearly 300 cities lacked wastewater facilities. Chinese officials have said significant capital is necessary to help China meet its water needs (see The Wild West of water in China).

The economic slowdown will inhibit the sector's annual growth, which was once projected to be 17 percent to 18 percent, Chen said. However, those figures are likely to be acheived in about three years, with 2009 seeing growth rates of 12 percent to 15 percent, she said.

One of the hottest subsectors in 2009 and 2010 is wastewater treatment in China, necessitated by the urbanization that requires sewage disposal and environmental protection measures, Chen said. That sector has already spawned a number of major municipal projects since 2002, she said.

In October, the Beijing government announced plans to invest RMB 13 billion ($1.9 billion USD) in wastewater treatment and solar power projects in rural areas in the next three years (see Beijing invests RMB 13B to counter 2017 water shortage). The city's water shortage is expected to reach a critical stage around 2010 when the population hits 17 million.

And there's a growing industrial demand for water in processes such as food and beverage, pharmaceuticals, and microelectronics, creating a market opportunity for technologies such as reverse osmosis and ultrafiltration.

"Original market leaders were from EU and Japan, but they are now facing fierce competition from rapidly growing Chinese players," Chen said.

"In particular is the civil contracting market which is dominated by local players with a main local focus and access to cheap labour. The equipment and technology markets are much more open to international competitors and are also spawning Chinese players that are increasingly turning their attention to export markets."

The projections for the water sector are starkly different from other cleantech sectors, such as solar. Revenues from solar panels are expected to drop as much as 19 percent in 2009 (see Is this the end of China's solar boom?).