Water companies starting to bubble up

The France-based Veolia Water, the largest water supply and treatment company in China, is facing fierce competition from Chinese rivals, which have benefited from the large amount of capital put into the industry and the adoption of new business models.

In 2011, two Chinese water operators saw their ability to process water approach Veolia's. Beijing Capital Co Ltd was able to process 12.9 million cubic meters of water a day by the end of that year and Beijing Enterprises Water Group Ltd was able to process 11.4 million cubic meters.

Veolia could process about 13.9 million cubic meters a day, according to the annual Strategic Forum on the Water Sector, which was held on Friday.

Fu Tao, organizer of the forum as well as the director of Tsinghua University's Water Policy Research Center, said the water industry will change in 2012 as it obtains investments from more diversified sources.

This year, the water industry is expected to grow at a much faster rate than the country's GDP, Fu said. Even so, its low profits are expected to linger for two or three years as a result of price constraints and regulatory limitations, he said.

Chinese companies have recently shown great enthusiasm for investing in water companies from around the world.

Last year, Cheung Kong Infrastructure Holdings Ltd bought the UK-based Northumbrian Water Group Plc. China Investment Corporation acquired an 8.68 percent stake in Thames Water Utilities Ltd, a UK-based water and sewage company, in January.

The industry is expected to undergo great changes in the coming years as domestic companies gain prominence, Fu said.

The Shanghai Industrial Investment (Holdings) Co Ltd, parent company of Asia Water Technology Ltd and United Environment Co Ltd, aims to be able to supply more than 10 million cubic meters of water each day by the end of 2013, up from the current 7.2 million cubic meters, said Zhou Jun, vice-president of the company.

His company plans to purchase two other Chinese private water companies in 2012 to meet its goal of serving 40 million people in China, Zhou said.

"The company is assessing a number of new projects," he said. "We hope in the coming two years that we can run the whole gamut ranging from water supply to desalination of sea water."

Yu Honghui, vice-president of the China Energy Conservation and Environmental Protection Group, said the company will pay more attention to services and technical innovation.

He said the company has reached an agreement to perform various environmental-protection services for Jiangxi province. As part of that, the Jiangxi government will outsource treatment of waste water, heavy metals and solid wastes to the company, he said.

With an investment of about 10 billion yuan ($1.6 billion), the company plans to build or modify more than 100 water treatment plants in Jiangxi.