The objective of this report is to provide an overview of China’s municipal wastewater treatment (WWT) market, the competitive landscape, and key opportunities and challenges for companies considering entry into the China market.
Wastewater Generation. China’s municipal wastewater discharged has been growing faster than industrial wastewater in the past decade. As of 2012, China discharged 68 billion tons of wastewater; municipal wastewater and industrial wastewater accounted for 62% and 38% respectively. The top 6 provinces of total wastewater discharged are Guangdong, Jiangsu, Shandong, Zhejiang, Henan and Fujian, accounting for 45% of domestic wastewater discharge in 2011. The top 4 wastewater discharge industries are steel, chemicals, paper manufacture, leather, and pharmaceuticals. Currently, China’s average water reclamation utilization rate is about 8-9%, but expected to reach 10% during the 12th Five- Year Plan (FYP) period1, which is below the average reclamation rate of developed countries, which is 70%. Large amounts of untreated sludge discharge have caused severe environmental pollution. During the 12th Five-Year Period, newlyadded sludge treatment capacity will reach 5.2 million tons with total investment of RMB 35 billion (USD 5.6 billion); city sludge treatment rate is expected to reach 70-80% while town sludge treatment rate is expected to reach 30%. However by end of 2012, the completion rate of the sludge treatment facilities were only 27%.
Wastewater Treatment. As of 2012, China had over 3,830 municipal wastewater treatment plants (WWTPs), an increase of 6% year-on-year over 2011; total daily WWT capacity reached 142 million tons, an increase of 4.4% over 2011. China’s municipal and industrial WWT rates reached ~85% and over 95% respectively2. China’s WWT capacity grew at 14% CAGR3 from 2005 to 2012. The 12th FYP set targets to grow the total investment in wastewater treatment by 17% (RMB 430 billion), compared with the 11th FYP period (2006-2010). Around 57% of the investment from the 12th FYP will be used for newly-added pipelines and 43% for wastewater and sludge treatment facilities. Insufficient operating funds for WWT facilities and a lack of financial support from local governments, together with an underdeveloped piping network, sludge disposal systems, and other auxiliary systems, have restricted the actual capacity of municipal waste water treatment facilities.
Wastewater Treatment Technologies. There are three major processes in treating wastewater, i.e. primary physical treatment, secondary biological treatment and tertiary chemical treatment. Majority of WWTPs in China are centralized4 with secondary biological treatment. China’s WWT technologies are in a nascent stage; ~60% of the domestic municipal WWTPs use Oxidation Ditch Process (OD), Anaerobic-Anoxic-Oxic (A2/O), and Sequencing Batch Reactor (SBR). However, Membrane Biological Reactor (MBR) is the fastestgrowing WWT process in China, with over 50% year-on-year growth over the past five years, although its current market share in domestic WWTPs is still very small.
Competitive Landscape. China’s WWT market has developed rapidly with the increasing awareness of environmental protection and significant government investment; the total market turnover reached ~USD 24 billion in 2012. The market is highly fragmented with foreign players dominating the high-end equipment and technology market. Veolia Water and Suez Environment are the two best-known foreign players in the Chinese water market, jointly accounting for about 5% of the whole WWT market and about one third of market in the tier 1 cities5. About 15% of companies in the industry are foreign-invested, supplying integrated WWT services and advanced technologies.
Opportunities. With rapid urbanization, industrialization, and increasing environmental standards, as well as relatively low WWT facility coverage in tier 2 and 3 cities and rural regions, there is still potential in China’s WWT industry. Four areas in municipal WWT will be the key investment focus during the 12th FYP period, which are: 1) WWT facilities; 2) water reclamation; 3) sludge treatment and disposal; and 4) piping network construction. The central government’s construction plan includes ~1,200 new municipal WWTPs and 160,000 kilometers of piping. The goals are to increase municipal WWT rate to 85%, daily WWT capacity by 42 million tons, and load rate of WWT facilities to over 80% by the end of 2015. WWT equipment manufacturing, WWTP’s construction and operation are especially encouraged for foreign investment by the Chinese government.
Considerations. There are thousands of domestic players that compete on low prices and relationships with local governments, which can create a difficult market for foreign invested enterprises to compete against, especially small and medium enterprises(SMEs); there are also many large state-owned WWT enterprises which have local competitive advantages to compete against. Additionally, low WWT fees are one of the main challenges for profitability in the industry, especially for WWTP operators as fees are capped although costs are variable. The tier 1 and some key tier 2 cities already have significant investment in facility construction and many large players already have a strong presence in these markets; tier 2 and 3 cities and county areas have seen less investment to date and thus there may be more opportunities in these lower tier cities. However, the returns on investment (ROI) may be lower than urban areas due to much lower WWT fees.
2. Executive Summary
3. Industry Overview
3.1 Wastewater Generation
3.2 Wastewater Treatment
3.3 Wastewater Treatment Technologies
4. Ecosystem Overview
4.2 Supply Chain
5. Regulatory Environment
6. Key Regional Markets
7. Market Entry