• 1. Outlook for water companies in China is excellent
  2. But low prices are a major challenge for the water industry
  3. The industrial segment in particular is forecast to grow by 30% by 2015 – an exciting expansion option for private players
  4. In the municipal market, only established, highly experienced players can expand their existing business
  5. In the industrial sector, powerful international players will have a key advantage as first movers in the market

Shanghai, February 6, 2013

The Chinese water market is growing at a rapid pace. Experts from Roland Berger predict that the market will grow by 30% by 2015, especially in the commercial segment. This segment offers very good prospects for international players as well. By contrast, the municipal water sector remains the preserve of established players. However, despite the good development prospects, the business environment will remain tough for water utilities in China. Water tariffs are currently too low to cover utilities' operating costs and fund crucial infrastructure improvements. These are the key findings of "Pouring Profits", a study by Roland Berger Strategy Consultants. The study is the latest in the think:act series of publications.

The Chinese market offers both domestic and international players considerable potential. As the country urbanizes, urban residential water usage is expected to increase by 3% annually. Water tariffs are also on the rise, which mainly benefits private-sector players in the municipal market.

There is also a lot of potential in the industrial segment, with water treatment processes increasingly being outsourced. In addition, the Chinese government's 12th Five Year Plan stipulates investment of RMB 700 billion in sewage treatment between now and 2016.

Water tariffs – a major challenge

Water companies hoping to take advantage of the upturn in the Chinese market will face certain hurdles, according to the Roland Berger experts. Water scarcity and pollution will continue to push up water tariffs over the next few years.

But tariffs are still too low: water companies are often unable to cover their high operating costs and invest in crucial infrastructure improvements. And it is still unclear when tariffs will rise, and by how much.

Better opportunities in the commercial segment

The prospect of rising tariffs and increased demand for water supply and treatment is attracting more and more companies to the Chinese market. International private-sector players should establish their business in the industrial sector in particular," advises Roland Berger Partner Yannig Gourmelon. "The municipal market for water utilities is already saturated, with Chinese companies the key players," he adds.

Water treatment offers significant potential. Regulatory pressures are now forcing industries to make drastic improvements, often by outsourcing this business area. Unlike the municipal water market, the industrial sector is relatively untapped, with few active players. "Water companies should carefully think through their strategy for the Chinese market, but the outlook is extremely promising if they can position themselves properly," concludes Gourmelon.