The fate of China’s rulers has often been closely linked to the country’s streams and rivers. The survival (or demise) of most of the dynasties in history has depended on how successfully they’ve managed to control water. In the past that’s largely meant irrigation and flood control. But for today’s rulers it also means finding ways to make existing water supplies clean enough to use.
The country’s leaders can’t afford to let a water shortage impede economic growth, but industrial and agricultural pollution are continuing to curtail already limited water supplies at an alarming rate. There is a plan to fix the problem, but it won’t come cheap.
As much as 70% of the country’s rivers, lakes and reservoirs are “not safe for humans to use,” according to Greenpeace. The assessment is particularly worrying when you consider that around half of China’s municipal wastewater isn’t treated.
That’s left the government struggling to cope with an estimated 400 million rural residents lacking access to safe drinking water, as well as water systems that, in some places, have become so polluted they’re unfit even for industrial use.
The issue has become so urgent that the country’s next five-year plan (ending in 2015) has budgeted Rmb1 trillion ($149 billion) of central government funds for new water treatment facilities (versus just Rmb143 billion in the previous plan), according to a South China Morning Post report.
It’s a staggering sum to spend on something that nature used to provide for free. But some of that money will go towards firms offering newer (and more expensive) ways to clean up water resources where existing methods are proving incapable.
One of those new technologies is ‘membrane bioreactors’, currently being championed by multinationals like Siemens, General Electric and Mitsubishi. The technology has become popular in China because it takes up much less land (90% less in some cases).
Traditional treatment technology works by letting wastewater settle in a series of sedimentation tanks where natural microorganisms break down the waste. With the membrane bioreactor technology clean water is drawn out through a membrane, which has pores so narrow that microbes aren’t able to escape. Keeping those microbes inside the wastewater tank that makes the clean-up process significantly faster. It is also supposed to provide cleaner water as an end result than a regular plant. The only hitch is that it also costs up to a third more to run. That’s partly because the sludge inside the ‘bioreactor’ has to be constantly stirred so that it doesn’t clog up. But the biggest cost is the membrane itself, which has to be replaced roughly every eight years.
That high cost is something proponents of the technology are hoping will change.“After all, a membrane is a kind of plastic, and with technological development and a bigger market, the price of [the membranes] will come down,” Jin Zhijun, one of Siemens’ local representatives told CBN Weekly.
The higher costs certainly haven’t stopped local governments from commissioning facilities that use the technology. Both Siemens and the recently listed Chinese firm Origin Water built pilot projects in Beijing ahead of the 2008 Olympics. Singapore-based United Envirotech just finished building a $52 million plant in Guangzhou, the largest of its type in Asia, and is in the process of building another in Heilongjiang.
And that’s not the only technology on offer. The most expensive water project by far is the government’s $62 billion North-South Water Diversion scheme, which carries water from the Yangtze River to parched northern cities. Caixin magazine estimates it will end up costing Rmb10 ($1.47) per cubic metre. Water in China currently costs around $0.31 for the same amount.
The plan won’t eliminate the need for treatment facilities. The river is by now so polluted that Tianjin, slated to be the first recipient of its water in two years time, has elected to build desalination plants as well. Tianjin residents drank the country’s first desalinated water a couple of weeks ago, when a new pipeline began pumping it in from its coastal plant. Caixin reports that the city runs the plant at a loss.
The investment in water facilities wouldn’t need to be quite so high if pollution laws already on the books were enforced. So far that’s not been the case. “When it comes to implementation,” writes Wang Jin, a law professor at Peking University, “[China’s pollution laws] are useless.”
Some in the government have argued that industry would have more incentive to conserve water if it wasn’t so heavily subsidised. The government currently undertakes to supply a more or less unlimited amount at a fixed price currently a tenth of water costs in Europe. Raising the price – with business users or residential ones – would provoke an immediate backlash.
The idea has the support of many private investors, who control about a tenth of China’s water supply. At the moment, they sell at government-set prices that typically support a guaranteed return on equity (which can be as high as 12%). Some of those investors are foreign enterprises (which have been bringing in many of the new technologies). But officials fear that prices would get out of hand if they gave too much rein to market forces, and that foreign firms would prove harder to influence than domestic ones if the government stopped regulating prices.
China’s leaders are watching closely how the public reacts to price increases where they do occur. Zhongshan, a major city in Guangdong, is in the process of raising charges as much as 17%, and that’s after a 20% rise last November. So far residents’ complaints have been limited to postings on internet forums. More voluble demonstrations may follow.
© ChinTell Ltd. All rights reserved.
Sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.