China’s Municipal Water Industry

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.