Frost: Regulations, Reforms Drive Chinese Municipal Water, Wastewater Treatment Equipment Market

November 6, 2006 // Published as a news service by IHS

New analysis from Frost & Sullivan of the Chinese municipal water and wastewater treatment equipment market found earned revenues of $428M in 2004, with estimates to reach $1.58B in 2011.

"According to the new drinking water standards, the number of tap-water test items has increased to 101, as compared to the 35 items listed in the old standards 20 years ago," said Frost & Sullivan research analyst Hao Yu.

"This is bound to drive demand for advanced water treatment equipment, since conventional equipment is unlikely to satisfactorily meet the new regulations."

The new Five-Year-Plan also stipulates the need for greater involvement of the Chinese government in the environmental protection industry and sets goals to achieve a higher wastewater treatment rate. To reach these goals, analysts said government bodies built approximately 3,000 wastewater plants from 2001 to 2005, which is likely to lead to strong growth in the wastewater treatment equipment market.

Analysts said government bodies are also implementing many reforms in an attempt to improve the management of municipal facilities. Until the 1990s, the government was the only investor in the construction and operation of these facilities. However, the situation is now changing with the government's withdrawal from this role, forcing municipal facilities to find ways to fund and run their operations independently.

Among the changes brought about by these reforms, two new management models - Build-Operate-Transfer (BOT) and Transfer-Operate-Transfer (TOT) - have been introduced in the market. Analysts said government bodies and market participants have received both models well.

Despite the diversity of available opportunities, analysts said the competition in this market is intense and companies face huge barriers to entry. Local protectionism is one of the most critical factors preventing international companies from entering the market.

Some local authorities make it a point to exclude foreign companies and even those from other regions in China during the bidding for large municipal projects. This practice has evolved in order to protect local participants and help the local economy flourish.

"Building and maintaining good relationships with government bodies is an efficient way to overcome this challenge," said Yu. "Establishing strategic partnerships with local participants is another way."

Source: Frost & Sullivan.