Trends in Chinese Water and Wastewater Markets
By Karen Gorm Rasmussen, Industry Manager, Environmental Health & Safety
March 26, 2001—As traditional water and wastewater markets in developed regions of the world start to show signs of maturity, industry participants seek new opportunities in unexplored areas of the globe.
One nation showing tremendous market potential is China, which with its population of 1.3 billion in 2000, represent the single largest nation in the world. Water problems are abundant in this developing nation, facing distinctly different problems depending on the region examined. According to the World Resources Institute, water shortages in cities cause a loss of U.S. $11.2 billion in industrial output, while water pollution's effect on human health is valued at U.S. $3.9 billion a year.
Finally, severe flooding in certain areas of the country are causing undetermined amounts of damage every year. The ecological systems in the developed eastern region have been endangered to varying degrees and have resulted in considerable economic and social losses. Governments at various levels are strictly enforcing laws related to water pollution control and are also increasing investments in the construction of municipal sewage treatment plants.
Additionally, the overall raw water treatment capacity falls short of urban residents' demand for water, thereby requiring governments to also set up water treatment facilities in these areas. Forced by the implementation of the environmental and water pollution control laws, polluting enterprises are setting up effluent treatment plants to avoid fines and other punishment / penalties. Rapid industrialization in China is also stimulating demand for industrial input water treatment equipment.
The Chinese water and wastewater treatment equipment (W&WWTE) industry achieved significant progress in late 1980s and early 1990s in terms of output value and technology. Currently, the overall technology level of Chinese W&WWTE industry is equivalent to that of the developed countries in the late 1970s.
Therefore, water and wastewater treatment projects in China have to partly rely on imported equipment. This is especially true for large-scale treatment projects and projects for treatment of special industrial effluents such as electroplating effluent. The Chinese W&WWTE market is currently in its development age, and is expected to grow at a compound annual growth rate (CAGR) of 13.6 percent during the period 2000 to 2007.
While this growth rate is highly attractive to U.S. and European manufacturers, which are seeing domestic markets growth rates falling into the single digits, many challenges exist for companies seeking to penetrate the large Chinese market.
• China's proposed entry into the WTO increases competitive pressure on Chinese TVIEs
• Price competition reducing profit margins
• Financial strength emerges as an important requisite for improving market share
• Lack of trained personnel and outdated technology drives out small competitors • Market development requires integration of engineering design and equipment supply
• Donor loans and finance for municipal water and wastewater treatment plants require international standards of management
This market is project oriented and driven by the implementation of the laws related to water pollution control. Customers pay more attention to solution providers rather than pure equipment suppliers.
Additionally, the selection of equipment supplier or contractor of the entire project for all large-scale projects sponsored by donor loans are through global tendering system. With global competition and the opening up of the Chinese economy, project management is gaining importance.
A great number of competitors entered the Chinese W&WWTE market in the last decade (1990 to 1999), attracted by the higher profit margins as compared to other machinery industries. This has resulted in the over capacity and the adoption of lower prices as a key competitive factor for securing orders and increasing market share.
However, the tier I competitors are focusing more on technology and quality rather than price to market their products. Companies seeking to enter the Chinese market should by no means be intimidated by the many challenges posed by this market.
With markets in Europe and the U.S. showing signs of maturity, China might be an opportunity manufacturers cannot afford to ignore.
It is important, however, for potential entrants to carefully examine market opportunities and threats, and map an appropriate entry strategy.
