China’s Pollution Problems Could be a Huge Opportunity for Industrial Wastewater Treatment Companies

Published on 08 Jun, 2017

The sheer scale of the Chinese economy, growing awareness among industries about water sustainability, and government regulations demanding sophisticated wastewater treatment are driving the wastewater treatment market in China, which offers tremendous opportunities for international players.

It’s hardly a surprise that China — considered the world’s factory — is also the largest generator of industrial wastewater in the world.

Compounding the situation is the fact that major Chinese cities and provinces face severe water scarcity, with per capita water availability far below the global average.

The enormity of China's water crisis can be gauged by the fact that, while the country is home to 20% of the world’s population, it has just 7% of the world’s freshwater resources. Moreover, the availability of freshwater is marred by high pollution levels in China’s predominant freshwater sources, namely, rivers and groundwater. As per the 2015 State of Environment Report by China’s Ministry of Environment Protection, 60% of groundwater in China falls under the “bad” to “very bad” quality categories, whereas 28% of its river water has been cited as “unfit for human contact.”

Although World Bank data says that China’s per capita freshwater availability in 2015 was 2039 cubic meters – well above the World Bank water scarcity definition of 1000 cubic meters per capita – the regional distribution is highly skewed among the provinces. As evident in the next illustration, 11 out of the 31 provinces in China fall under the (water) scarcity or extreme scarcity categories, with water availability below 1000 cubic meter per capita.

Freshwater Availability in China

More notably, nearly half of China’s GDP is earned among water-scarce regions.

The 11 water-scarce provinces – the dry 11 – as they are called, contribute 38% of the total agricultural output in China. Moreover, these regions are bestowed with huge reserves of natural resources like coal. The Shanxi province, for example, accounts for 30% of China’s coal reserves and falls under the extreme water scarcity category.

This dichotomy between the economic activity and water scarcity in these provinces, aggravated by the poor quality of freshwater, has forced the Chinese government to take several concrete steps to arrest water pollution. Against this backdrop, the importance of sophisticated wastewater treatment and recycling cannot be over-emphasized. 

How Bad is China’s Wastewater Discharge Situation?

China discharged 73.5 billion tons of wastewater in 2015, more than the annual flow of the Yellow River, the second largest river in China.

As per the Ministry of Environment Statistics, China’s burgeoning industrial sector accounted for a quarter of this wastewater generated. It’s quite likely that these figures on industrial wastewater discharge are under-reported, as many polluting industries (such as textiles and tanneries) comprise SMEs where monitoring of wastewater data has not been up to the mark.

Pulp and paper, chemicals, textile, and coal mining industries were China's biggest polluters in 2014. Apart from these, steel, metals, and power industries are responsible for a significant amount of wastewater discharge into China’s freshwater bodies. In addition to these point sources, additional sources such as agricultural runoff, precipitation, drainage, and seepage are also considerable contributors to China’s water pollution woes.

The situation is dire enough that the Chinese government has to step in.

What is the Chinese Government Doing to Address its Water Issues?

Given the critical state of affairs, the Chinese government has undertaken several initiatives, from building water treatment plants and improving the water efficiency of industries to imposing strict wastewater discharge standards in terms of quality as well as quantity.

The current regime is undertaking measures to move toward a “circular economy” that emphasizes reuse and recycling of all resources, minimizing environmental impact. Several laws and regulations promulgated over the past two years are clear indicators of the government’s willingness to compromise on economic growth in favor of environmental protection.

The Chinese government has set some serious targets in the 13th Five Year Plan (FYP) (2015–20) in order to address water issues in China. The government has vowed to reduce water use per unit of GDP by 23% from current levels. The two indicators of water pollution – Chemical Oxygen Demand (COD) and ammonia nitrogen – will have to be reduced by 10% in the 13th FYP from their current levels. 

In April 2015, the State Council of China issued the “Water Pollution Prevention and Control Action Plan,” also known as the “Water Ten Plan,” which aims to control pollution discharge, promote economic and industrial transformation, as well as save and recycle resources. This is an umbrella plan that requires various ministries such as the Ministry of Environmental Protection, Science and Technology, Urban Development, and Industries and Information Technology, to work in tandem in order for it to succeed.

Increased penetration of wastewater treatment facilities among polluting industries is one of the key tenets of the Water Ten Plan.

For instance, the plan mandates all industrial clusters equipped with central wastewater treatment facilities and online monitoring equipment by 2017. This initiative is expected to be implemented on an urgent basis in extremely water scarce and polluted regions, such as Beijing, Tianjin, Hebei, and the Pearl River and Yangtze River deltas. The Water Ten Plan lays down clear, time-bound mandates for various polluting industries, including pulp and paper, textiles, tanneries, and electroplating, to comply with the new wastewater discharge standards - or face the prospect of heavy penalties and closure.

Ensuring clean water for all is a top priority for the Chinese government. The relevant ministries have already issued necessary laws to help minimize water pollution. China has an enviable record of clinical implementation of key policies and fast-track execution of infrastructure projects. The huge demand for adequate and clean freshwater, strong government support in the form of strict environmental laws, and enforcement of said laws is an ideal recipe for a thriving wastewater treatment industry in China.

Could This be an Opportunity for Wastewater Treatment Companies?

While opportunities abound across the spectrum for wastewater treatment companies in the Chinese market, there are certain industries or applications that could showcase significant prospects for technology suppliers.

For instance, the Coal-to-Chemicals (CTX) industry is gaining significant ground in the coal-rich provinces of China, which also happen to be water stressed. Wastewater generated from the CTX industry is extremely contaminated with organic and inorganic pollutants. The government has mandated strict adherence to “Zero Liquid Discharge (ZLD)” where all the wastewater is recycled back into the process, and no wastewater flows out of the plant premises. ZLD is very technology intensive, and only a handful of international players have mastered it. Renowned international players, such as Aquatech International Corporation, Oasys, and GE Water have recently won orders for ZLD supply in the Chinese CTX market. The ZLD technology, however, is energy-intensive, and therefore, expensive. Cheaper alternatives that provide the same end result would be welcome in the Chinese market.

Some industries, such as textiles, tanneries,pharmaceuticals, and coke production, generate wastewater that is difficult to treat using conventional treatment technologies. They contain organic pollutants that aren’t easily biodegradable (hard COD) and that can severely harm the environment if discharged untreated. Given strict government regulations, investment in hard COD removal technologies is expected to rise significantly over the next few years.

Apart from technology supply, considerable opportunities lie in the financing of wastewater treatment assets. Technology companies may join hands with investors to offer wastewater treatment solutions on a Build-own-operate-transfer (BOOT) basis. Such models reduce the inconvenience of operating and maintaining the wastewater treatment plant significantly for end users, allowing them to focus on their core business instead. BOOT models are common in municipal or desalination plants in China but are yet to gain traction in the industrial wastewater treatment space, with applications such as industrial park wastewater treatment plants. There are over 3,300 industrial parks in China, and less than half of those have centralized wastewater treatment plants installed. This could well be a huge opportunity for wastewater treatment technology providers and investors.

Will Foreign Players Find Ground in China’s Industrial Wastewater Treatment Space?

International wastewater treatment companies need to have the right strategy in place to establish a presence in the Chinese market. Partnering with a Chinese player that has complementary competencies is a tried-and-tested strategy employed by many international players in the past. Chinese customers prefer a local presence of the technology provider that they’re contracting, particularly for after-sales service. Forming a joint venture with established Chinese players, absorbing equity from Chinese investors, or partnerships with the customers themselves, any of these strategies could help make headway in a relatively untapped Chinese market.

While new and advanced wastewater treatment technologies are gaining ground in China, the market is still price-sensitive. International players need to have the right mix of design and procurement strategies in order to provide competitive pricing. Possible government regulations related to locally sourced materials/components may not augur well for international players that see China as an export destination. For instance, the Chinese State Council has a goal stipulating that 70% of equipment in a desalination plant should come from China. Although the same rule doesn’t apply to wastewater treatment facilities right now, it, and other such risks, cannot be ruled out.

There’s also a significant lack of transparency in the procurement processes, especially among municipal wastewater treatment projects, in China, something that’s particularly concerning for international players operating in the mainland. The government has acknowledged these and similar concerns, however, and is taking steps to control it.

Future Outlook

China’s industrial wastewater treatment market has the numbers to warrant foreign investment in the sector.

With the Chinese government coming down hard on polluting industries and strictly enforcing regulations, state-of-the-art technologies could be crucial if Chinese industries are to comply with increasingly stringent standards. With government-enforced closures or production cuts looming, polluting industries such as textiles, wood pulp and paper, and others that don’t meet emissions standards would be willing to experiment with innovative imported technologies.

The Chinese government aims to build world-class industrial infrastructure while fixing the country’s environmental woes. This could be a treasure-trove of opportunities for international players in China’s industrial wastewater treatment market.

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