Photo: Industrial water Pollution, Wikipedia

Effects of recent developments on the industrial water market

Although agriculture is the largest source of water pollution in China, industrials are to blame for the most damaging pollution. At the time of writing there are more than 450 ‘cancer villages’ in China, where cancer mortality rates are at least twice as high as the national average. The rise of cancer villages has been directly linked to water pollution.

It is therefore no surprise for new policies to enforce wastewater treatment, especially for highly polluting industries. Major polluting industries are the first to be hit, with smaller factories without qualified water treatment facilities to face shutdown by 2016 and larger companies in ten industries targeted for specific treatment schemes.

The key question that arises is: how are small factories able to afford purchasing expensive wastewater treatment equipment? The simple answer is: they cannot.

But there is an alternative available, which comes in the form of industrial parks with centralized wastewater treatment facilities. More and more smaller factories will be forced to move to industrial parks to keep their doors open while complying with the new environmental regulations.

Spending on wastewater treatment to grow by 30% in 5 years

As process water directly affects the manufacturing process and wastewater is still largely seen as a financial nuisance, industrials have been more willing to invest in the water treatment segment in the past.

However, as industrials are now being forced to comply with the new environmental laws, the wastewater segment is expected to experience a surge in growth.

To draw this out in numbers: While capital expenditure on the water (supply) segment is estimated to remain larger at around $3.8 billion, this segment is estimated to grow merely by 20% between 2015 and 2020. During the same period, the wastewater treatment market is expected to grow by 31.5% to reach $3.0 billion.

Given this shift in focus, the wastewater treatment segment will offer greater opportunities; especially as foreign companies can leverage their know-how to offer advanced technologies that domestic companies cannot yet provide.

Smaller factories are likely to consolidate in industrial parks

Small- to medium-sized factories won’t be able to bear the significant capital expenditure involved, let alone the high operational costs that will thin out profit margins. It is highly unlikely however that the government would want to wipe out such a large proportion of its industry.

The simple answer: collective treatment in industrial parks, which is not only more economical for individual factories, but also saves land use and is more efficient in general[1].

A case point is the textile industry[2], in which industrial parks with specialised treatment facilities for textile dyeing and finishing are seen as one factory. This means that the industrial park as a whole needs to comply with the latest discharge standards, while factories within the park are allowed to treat their wastewater to lower standards. This allows small- to medium-sized factories to survive while still ensuring that standards are met.

Industrial parks are a prime target for water treatment companies

The Chinese government is heavily promoting the concept of industrial parks to improve the geographical distribution of its industries and – as we’ve shown in the example above – also to facilitate industrial wastewater treatment.

The country is currently home to more than 3,300 industrial parks, of which less than 50% have centralised wastewater treatment plants. This is due to change:

To be granted new project approvals and avoid license suspension, all industrial parks are required to install centralised treatment facilities and online monitoring systems by the end of 2017 (end of 2016 for most developed regions: Beijing-Tianjin-Hebei, Yangtze River Delta and Pearl River Delta).

Opportunities are not only limited to installing or upgrading centralised treatment facilities, but also include specific solutions for individual factories within the industrial parks. This makes for an increasingly interesting niche market to pursue.

Focus on selling integrated solutions, not merely equipment

Foreign companies looking to enter the market should note well that the traditional approach of doing business in China is changing, and that the government and Chinese companies are not looking to merely purchase equipment anymore.

The government is promoting environmental protection as a lucrative industry in itself and most Chinese companies are eyeing environmental protection (and water technology) as an investment opportunity as opposed to a bothersome cost. As a result, foreign companies will face strong competition from domestic firms that are supported by the government.

Stay tuned for our next blog post to find out how foreign technology providers can find a market in the Chinese industrial water sector.



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Launch Factory 88

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