China quenches thirst with new science, foreign cash

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China is one of the most thirsty countries in the world.

Within 663 cities in the nation, more than 400 cities are facing a water shortage, and 110 cities are in extremely severe situations. However, the large demand of 1.3 billion people for water has provided a stable and considerable market for water suppliers, thriving the water market in China.

The Chinese government has increased its investment in the water industry. However, there is still a large space for foreign investments, loans, and market financing, providing considerable potential for investments.

Right now, the water-supply system in the nation is an administrative monopoly, resulting in a low water prices, low profits and governmental subsidies, which largely limit the business operations and development of water corporations.

But we are expecting changes to the Chinese water industry. The influx of external capital and technological innovations are expected to reform the industry, improve management and control costs. 

Progress has been made: Large-scale water-business groups have been established by acquiring diverse and small companies. And the investment market for the water industry is opening the door to foreign cash.

In the early years, the Chinese government invested capital into the waterworks facilities by granting them with operations rights and reasonable rewards. This is known as BOT (build-operation-transfer) mode. The purpose is to attract capital and improve the management, thus accelerating revolutions.

But joint ventures are also becoming a popular option, with foreign investors taking part in mergers and acquisitions. Vivendi and Suez have come into China for joint ventures with domestic enterprises.

The M&A works in the two following modes: either as a cooperation to operate new sewage farms, or a direct merger and acquisition in which foreign companies hold stock in water factories and help improve the operations.

The influx of foreign capital has just begun. Except Pudong waterworks, projects that involve foreign companies don’t face the end-customers. Benefits of the price revolution are not assured, which has established some extent of policy risk. Foreign enterprises must also take on the risk of the exchange rate in the international capital market.

However, more foreign companies will certainly enter the Chinese water market. Suez Lyonnaise des Eaux CEO Gerard Mestrallet said recently that the company will establish its Asian headquarters in Shanghai, further developing business within China.

But as China is opening its water industry to foreigners, scientists are also helping the country with water-processing technology. The new discoveries have provided new ideas for the water purification industry.

Recent findings by professors from Nankai University indicate that the solar spectrum can be used for the production of hydrogen energy by splitting water, and used for the purification of water and air. The key problem is to find the right photo-catalyst that responds to visible light, and these researchers used a nanostructured gold catalyst with light driven reactions in ambient temperature.

Also, scientists from Huaihai Institute of Technology recently found that walnut shells could provide a natural, cheap and easily available way to clean water chemically. Walnut shells have previously been used to successfully remove hydrocarbons such as benzene and toluene from water. In the new study, the nutshells were found to be capable of removing up to 97 percent of water's chromium, which is a common heavy metal contaminant of water supplies.