Rapid industrialization, increasing public health concerns and shortage of fresh water are some of the key factors driving change within the Chinese municipal water and wastewater treatment equipment market. In response to growing health fears following the SARS crisis, the Tenth Five-Year Plan has set out new and considerably stricter drinking water standards that are likely to create immense opportunities for the development of this market.

New analysis from Frost & Sullivan (http://www.environment.frost.com), the Chinese Municipal Water and Wastewater Treatment Equipment Market, finds that this market earned revenues of $428 million in 2004 and is likely to reach $1.58 billion in 2011.

“According to the new drinking water standards, the number of tap water test items has increased to 101 as compared to the 35 items listed in the old standards, 20 years ago,” says Frost & Sullivan Research Analyst Hao Yu. “This is bound to drive demand for advanced water treatment equipment since conventional equipment is unlikely to satisfactorily meet the new regulations.”

The Tenth Five-Year-Plan also stipulates the need for greater involvement of the Chinese government in the environment protection industry and sets goals to achieve a higher wastewater treatment rate. To reach these goals, government bodies built around 3,000 wastewater plants from 2001-2005, which is likely to lead to strong growth in the wastewater treatment equipment market.

Government bodies are also implementing many reforms in an attempt to improve the management of municipal facilities. Until the 1990s, they were the only investors in the construction and operation of these facilities. However, the situation is now changing with the government’s withdrawal from this role, forcing municipal facilities to find ways to fund and run their operations independently.

Among the changes brought about by these reforms, two new management models - Build-Operate-Transfer (BOT) and Transfer-Operate-Transfer (TOT) - have been introduced in the market. Government bodies and market participants have received both models well.

Despite the diversity of opportunities available, the competition in this market is intense and companies face huge entry barriers. Local protectionism is one of the most critical factors preventing international companies from entering the market. Some local authorities make it a point to exclude foreign companies and even those from other regions in China during the bidding for large municipal projects. This practice has evolved in order to protect local participants and help the local economy flourish.

“Building and maintaining good relationships with government bodies is an efficient way to overcome this challenge,” says Yu. “Establishing strategic partnerships with local participants is another way.”