China’s 13th Five Year Plan & the Wastewater Treatment Industry

China’s 13th Five Year Plan & the Wastewater Treatment Industry

 

Background

The fact that China’s rapid social and economic development is resulting in the degradation of the ecological environment is not news anymore. Water pollution is just one of the environmental challenges facing China’s policy makers. Just how serious is the problem? According to statistics from the National Development and Reform Commission (NDRC), around 32.5% of China’s 7 major river systems and 29.2% of China’s major basins do not meet the prevailing water quality standards (grade III and below) in 2015.

 This has been largely due to the long history of unfettered emission of untreated/under-treated industrial, agriculture as well as domestic wastewater into these water bodies. Not only this, investments in wastewater treatment facilities have been both lacking and lagging behind. In the 12th Five Year Plan (FYP) period, investments into treating wastewater have decreased, even as investments into cleaning up industrial air emission have increased substantially (see figure 1 below).

Figure 1: Annual Investments in Environmental Protection by the Industrial Sectors (Bn RMB, 2010-2016) 

Year

2010

2011

2012

2013

2014

2015

2016

CAGR

Total

39.7

44.4

50.0

85.0

99.8

77.4

81.9

14.3%

Wastewater

13.0

15.8

14.0

12.5

11.5

11.8

10.8

-1.8%

Air Emission

18.8

21.2

25.8

64.1

78.9

52.2

56.1

22.6%

Solid Waste

1.4

3.1

2.5

1.4

1.5

1.6

4.7

2.5%

Noise Pollution

0.1

0.2

0.1

0.2

0.1

0.3

0.06

14.5%

Others

6.2

4.1

7.6

6.8

7.7

11.5

10.2

13.1%

 Source: China Statistical Yearbook 2016, National Bureau of Statistics

Note: 2017 figures are not available at the point of writing.

 

In a bid to reverse this, the Chinese government amended the new environmental protection law and imposed a set of “Water Ten” guidelines in 2015. In this article, we will explore the 13th Five Year Plan on Urban Sewage Treatment and Water Recycling Facilities Planning (FYP) and the impacts and new opportunities it might bring.

 

PART I - Sector Overview

China’s wastewater treatment industry broadly covers the treatment of influent, sewage treatment and water recycling (mainly non-potable, for irrigation or industrial water reuse). In 2015, around 74 billion tons of wastewater was discharged by China’s population, industrial users and other commercial users. Of this, around 67% came from the municipal (mainly household) sector, 25% came from industrial sectors and 8% came from other centralized pollution control facilities

 

Figure 2: Annual Amount of Wastewater Discharged by Sector (2015)

  

Source: China’s Statistical Yearbook on the Environmental 2016

 Note: Centralized pollution control facilities refer to independent wastewater treatment facilities serving commercial, non-residential areas. The figures above do not include the discharge of industrial indirect cooling water or storm water collection via drainage pipes.

  

More wastewater is discharged by provinces along China’s coastal and Yangtze River economic belt provinces than the inland ones. Despite being a coastal province, Tianjin’s wastewater discharge volume is notably lower. This is because many of China’s first large scale municipal wastewater treatment projects were built there. 

 

Figure 3: Annual Amount of Wastewater Discharged by Province (2015)

 

Source: GCiS, China’s Statistical Yearbook on the Environment 2016

 

After used water is being discharged by households or industries, Chinese law requires that the wastewater be collected and treated before being released into the waterways. But in reality, few factories do so conscientiously because of the high cost involved. In earlier years, there were even reports of local governments halting the operations of their wastewater plants to save costs.

 

Figure 4: Wastewater Treatment Market Breakdown

 

Source: GCiS

 

Municipal wastewater treatment is typically undertaken by local governments, especially in the urban areas. Industrial wastewater treatment, on the other hand, is often done in-factory or in centralized treatment facilities located within industrial parks. Other commercial entities like tourist attractions or holiday resorts, nursing homes, airports or railway stations may sometimes have their own wastewater treatment facilities, in which case, they have been classified in the third broad category. Because the demand in this sector is relatively fragmented, official statistics on the installed base for this sector are not available.

 

Installed Base – Municipal Wastewater Treatment Market

 

According to the NDRC, China’s urban municipal wastewater collection network by end 2015 comprises of around 540,000 km of drainage pipelines, with sewage, rainwater and other combined sewage pipes accounting for 42%, 38% and 20% respectively. There are around 1,944 municipal wastewater treatment plants across China’s city/urban regions and 1,599 municipal wastewater treatment plants across China’s counties, accounting for daily processing capacities of 140 and 29 million cubic meters respectively. Higher concentrations of these are located along China’s coastal provinces like Guangdong, Shandong and Jiangsu, as well as in provinces that are located along the Yangtze River.

 

Figure 5: Number of Urban Municipal Wastewater Treatment Plants by Province (2015)

 

Source: GCiS, China’s Statistical Yearbook on the Environmental 2016

In 2015, only 11.4% of China’s villages had access to wastewater treatment facilities. Beyond the villages, only about 7% to 25% of China’s towns and townships had these facilities. The penetration rates of wastewater treatment facilities in China’s rural or suburban areas were still relatively low.

Figure 6: Penetration Rates of Wastewater Treatment Facilities in China’s Towns and Townships (2015)

Administrative Levels

National Total

Those with Wastewater Treatment Facilities

Wastewater Treatment Plant

Wastewater Treatment Facilities

(No.)

(No.)

Penetration Rate (%) 

(No.)

Capacity (m3/day)

(No.)

Capacity (m3/day)

Towns

17,848

4,512

25.3

3,076

14,236,500

11,573

11,311,000

Township

11,478

815

7.1

361

193,000

1,701

334,600

Special Districts

644

56

8.7

41

91,100

71

80,300

Source: China’s Urban Construction Yearbook 2015

 

Installed Base – Industrial Wastewater Treatment Market

 

At the end of 2015, the installed base of industrial wastewater treatment facilities in China is around 83,227, with a daily treatment capacity of 247 million tons (see figure 7 below). But in practice, despite having an annual treatment capacity of around 90 billion tons, the actual amount of wastewater treated in 2015 is only about 44 billion tons - which means a utilization rate of barely 50%. The metallurgy, chemical and paper manufacturing industrial sectors are 3 of the top spenders on wastewater treatment in China. On average, the expenditure for treating 1 ton of wastewater in the industrial sector is about RMB 1.50.

 

Figure 7: 2015 Installed Base of Wastewater Discharge & Treatment Facilities in China’s Industrial Sector

Industrial Sector

Number of Industrial
Enterprise
(unit)

Number of
Waste Water
Treatment Facilities
(set)

Capacity of
Waste Water
Treatment Facilities
(Mn tons/ Year)

Annual Expenditure of Waste Water Treatment Facilities

(Mn RMB)

Waste Water Treated

(Mn tons/ Year)

Waste Water Discharged

(Mn tons/ Year)

Utilization Rates (Treated/Capacity)

Treatment Cost (RMB/ ton)

Total

161,598

83,227

90,257

68,533

44,458

18,155

49%

1.54

Ferrous Metals Smelting and Pressing

3,476

3,677

33,022

12,023

19,012

912

58%

0.63

Raw Chemicals and Chemical Products

13,542

9,953

8,826

10,132

3,873

2,564

44%

2.62

Paper & Paper Products MFG

4,180

3,194

7,475

5,420

3,204

2,367

43%

1.69

Ferrous Metal Ores Mining and Processing

3,703

1,343

4,449

1,100

1,994

188

45%

0.55

Coal Mining and Washing

6,033

4,287

4,683

2,031

1,915

1,481

41%

1.06

Textile

Manufacturing

8,546

5,547

4,438

4,732

1,860

1,843

42%

2.54

Others

122,118

55,226

27,375

33,093

12,599

8,801

46%

2.63

Source: China’s Statistical Yearbook on the Environment 2016

 

PART II - 13th Five Year Plan for the Wastewater Treatment Industry

 

In the 13th FYP, China aims to spend around RMB 559 Bn or 0.75% of its GDP on its water treatment industry. This national level spending will account for only about 10-30% of the total financing supply in this sector. Apart from the national level funds, China's water treatment industry gets its funding from the provincial/local government funding, domestic banks and the private sector. Over the past decade, fiscal spending into the wastewater treatment industry has been primarily directed into municipal wastewater treatment projects or centralized wastewater treatment facilities located within industrial parks. Industrial/commercial in-factory or onsite wastewater treatment facilities are typically built using private funding.

On the whole, with the growing shift towards environmental protection, demand for wastewater treatment facilities has increased across all sectors. The demand amongst industrial users has also been strong due to the more stringent environmental regulations and enforcement. Errant polluters have been shut down and smaller sized factories who could not afford the expensive wastewater treatment equipment might increasingly be forced into industrial parks with centralized pollution control facilities.

Project Breakdown

From the fiscal spending allocation in figure 8 below, we can see that most of the government funding will be going into new sewage piping projects, new sewage treatment plants as well as upgrading of existing wastewater treatment infrastructure. Compared to the previous FYP, upgrading works will receive the largest increase in terms of funding while investments into reclaimed water treatment plants will experience the largest drop. RMB 142 Bn or 25% of the total spending will be allocated to upgrading works on existing sewage pipelines and sewage treatment plants.

Figure 8: Fiscal Investment by Category (12th vs. 13th Five Year Plan)

 

Source: NDRC, 12th and 13th Five Year Plan

Note: Government investment here refers only to national level funding allocated as part of China’s five year plans. Provincial or other local funding amounts are not included.

 

Of the amount allocated for upgrading works, around 70% of the funds to upgrading works will be directed to the country’s sewage piping infrastructure, distributed roughly equally between sewage pipes and combined sewage pipes (see figure 9 below).

 

Figure 9: Investment Breakdown for Upgrading Projects by Type (13th Five Year Plan)

 

Source: NDRC, 12th and 13th Five Year Plan

Note: Combined sewage pipes are piping systems that can accommodate both sewage discharge and storm water drainage.

 

 Regional Breakdown

 On the whole, the total funding for the wastewater treatment industry is set to increase 31% in the 13th FYP, from RMB 427 Bn to RMB 559 Bn. While most provinces will receive a net increase in funding amounts, some provinces like Tianjin, Beijing, Inner Mongolia will see less central funding in the 13th FYP.

 From figure 2 below, Guangdong and Zhejiang are the top 2 provinces that will receive the most amount of national level funding for their wastewater treatment industries. Zhejiang, in particular, will have around 87% more funding compared to the previous FYP. Apart from Zhejiang, Liaoning, Chongqing and Qinghai will also receive significantly higher funding amounts compared to the previous period.

 Even though new sewage piping projects are a common feature for most provinces in the 13th FYP, demand for wastewater treatment facilities will still look slightly different for some provinces. For instance, close to 50% of funding for Shanghai will be allocated for upgrading works while Beijing’s focus is more on new sewage pipelines and treatment plants, where only about 10% of the funding in Beijing is for upgrading works.

 Figure 10: Investment Allocation to Wastewater Projects by Province (13th Five Year Plan) 

Province

13th FYP

(Bn RMB)

12th FYP

(Bn RMB)

% Change

Top Project Type

Guangdong

39.5

39.0

1.3%

New Sewage Pipes &

Upgrading works

Zhejiang

39.1

20.9

87.1%

New Sewage Pipes

Jiangsu

32.4

30.4

6.6%

New Sewage Pipes

Hubei

31.1

18.8

65.4%

New Sewage Pipes

Liaoning

31.1

14.1

120.6%

New Sewage Pipes &

Upgrading works

Hunan

30.7

24.5

25.3%

New Sewage Pipes

Shandong

29.6

16.3

81.6%

Upgrading works &

New Sewage Pipes

Anhui

25.5

16.1

58.4%

New Sewage Pipes

Henan

24.6

15.6

57.7%

New Sewage Pipes

Shanghai

22.9

13.1

74.8%

Upgrading works

Shaanxi

21.8

16.6

31.3%

New Sewage Pipes &

Sewage Treatment Plants

Chongqing

21.7

9.4

130.9%

New Sewage Treatment Plants

Sichuan

21.5

15.1

42.4%

New Sewage Pipes

Guizhou

15.4

12.4

24.2%

New Sewage Pipes

Jiangxi

14.9

13.6

9.6%

Upgrading works

Guangxi

14.5

10.7

35.5%

New Sewage Pipes

Shanxi

14.3

9.1

57.1%

New Sewage Pipes

Hebei

14.3

14.9

-4.0%

Upgrading works &

New Sewage Pipes

Fujian

13.1

12.2

7.4%

New Sewage Pipes

Yunnan

12.6

15.5

-18.7%

New Sewage Pipes

Gansu

12.2

10.9

11.9%

New Sewage Pipes

Xinjiang

14.7

10.5

40.0%

New Sewage Pipes

Jilin

11.5

8.7

32.2%

New Sewage Pipes

Hainan

10.0

6.2

61.3%

New Sewage Pipes

Heilongjiang

9.4

13.2

-28.8%

New Sewage Pipes

Inner Mongolia

8.1

11.5

-29.6%

Upgrading Works

Tianjin

5.8

11.4

-49.1%

Upgrading Works

Beijing

5.3

9.1

-41.8%

New Sewage Pipes &

New Sewage Treatment Plants

Qinghai

4.9

1.9

157.9%

New Sewage Pipes

Tibet

4.2

1.2

250.0%

New Sewage Pipes

Ningxia

3.0

4.2

-28.6%

Upgrading Works

Total

559.7

427.1

31.0%

New Sewage Pipes

 Source: NDRC, 12th and 13th Five Year Plan

Note: Figures above exclude investments to enhance enforcement efforts, which could comprise of the construction of water quality monitoring stations along major waterways.

In blue – provinces with significant increases in funding amounts when compared with the 12th FYP.

In red – provinces with decrease in funding when compared with the 12th FYP.

 

 

PART III – Industry Outlook

 

Opportunities in the Industrial Wastewater Treatment Sector

With growing demand and availability of funds, this sector is expected to grow significantly in the near future. More stringent environmental mandates will drive demand from the industrial sectors pushing for new investments or upgrades of in-factory and centralized wastewater treatment facilities. Moreover, a slowly recovering manufacturing sector will also drive demand, as resumed production in various manufacturing industries stimulates the need for water and water recycling, particularly the textile, chemical and petrochemical industries. Given the growing need for water conservation and tightening environmental regulations, demand for wastewater treatment facilities will grow.

 

Opportunities in the Municipal Wastewater Treatment Sector

Because the bulk of China’s wastewater is generated by the household sector, demand from the municipal wastewater treatment sector constitutes a significant portion of the market. As local governments expand their municipal wastewater treatment coverage from urban areas to the counties and towns, where the penetration rates of wastewater treatment facilities are still low, demand here will be strong. Even in the urban areas, local governments are also faced with higher targets in working towards a more efficient use of their wastewater through water recycling. And for provinces that already have higher wastewater treatment coverage, much investment is still needed to repair outdated and old piping and treatment systems.  Replacement of old wastewater treatment infrastructure in regions such as Guangdong, Liaoning, Shandong and Shanghai will also catalyze the market growth.

In general, China’s municipal wastewater treatment systems are decentralized and come under the jurisdiction of local governments. Any investments into local wastewater treatment facilities are taken up by the different tiers of government, according to local needs. There is no centralized management of wastewater treatment facilities in China. This means that potential investors looking to enter the municipal wastewater market or those looking to expand beyond a particular province might be subjected to different regulatory procedures and standards.

Opportunities for Foreign Suppliers

While it is true in most cases that Chinese suppliers are more price competitive and many local governments favor local suppliers over foreign ones, foreign water treatment filtration and disinfection equipment, process technologies are still highly valued by downstream customers, given its high quality and reliability. This will benefit not just wastewater treatment equipment and systems suppliers but also those in complementary sectors like wastewater chemicals, piping materials, sewage pumps, non-corrosive coatings for pipes etc. Many foreign companies like Veolia and Gradiant have already been very active in developing projects and cultivating joint venture partnerships to leverage on the growth opportunities in this sector.

We should emphasize again that this is a diverse market, and opportunities will differ by product, sector (municipal, industrial) and region. Channels will also differ. In some cases the customer will be the water EPC, and in other cases the end-user. It’s important for a company to understand these before developing the market.

As a B2B research specialist, GCiS takes a deep interest in China’s Five Year Plans, in particular, the flow of government spending into key industries like the wastewater treatment industry. We provide a range of market assessment and research services to support your businesses in China’s wastewater treatment market. GCiS experience here includes flow control equipment, water chemicals, and dedicated water treatment equipment, industrial and municipal.