The water sector in China market. Opportunities for European companies

22 ott 2018
This report provides an overview of the existing market situation of China's water sector, highlights the main areas of opportunity for EU SMEs, and provides practical information on how to access these opportunities. The overall issues driving the water market and issues facing European companies wanting to enter are considered and then the specific opportunities and challenges in different sectors of agricultural, municipal, industrial, river basin management / flood control and water for energy are considered.

China is a decentralised administrative system. Responsibility for water services is devolved to municipal and county level government a uthorities. They are responsible for water resources, water treatment and supply, sewerage and collection, wastewater treatment, sludge treatment and environmental quality. They deliver these services based on policy and advice from the central government. An overall policy framework of “Ecological Civilisation” has been declared at the highest levels. This is driving a transformation of the Chinese economy to be more environmentally aware and sustainable. There are many new laws and regulations that have taken effect in the last few years that drive compliance with quality standards and set out massive investment programmes to achieve these. This is driving investment in new technology and innovative solutions to deliver better environmental and living conditions for the population. Guidance and regulation in meeting these conditions is provided by central government. Senior officials in local governments have personal performance targets for meeting environmental quality standards in their jurisdictions. The process of oversight in the meeting of these targets compensates for what might otherwise be seen as a weak regulatory system. This coordinates the country, the government and state industries to achieve the objectives. The financing of this investment has shifted to a hybrid mix of public investment and support to private investment. In working to reach these objectives there are opportunities for European companies to engage with Chinese partners to supply equipment, infrastructure and services. Many cities in China face severe challenges of water scarcity, pollution, flooding and inadequate infrastructure. All new development must meet water resource allocation limits, pollution load allocations, water reuse / recycling targets and comply with “Sponge Cities” standards. New rules are driving integrated approaches to water management as a part of overall sustainable urban planning. Drainage management, water reuse and decentralised treatment must be designed into new urban developments and be integrated with the urban waterbodies . For industry water saving is driven by objectives for water efficiency per unit of production and compliance with stricter quality standards. Agriculture, as the largest overall user of water, has to greatly improve efficiency of water use and reduce diffuse pollution while maintaining food production objectives and producing higher quality products demanded by consumers. Large quantities of water are used for energy production, both in hydropower and as cooling water for thermal generation and for unconventional gas production. The needs of energy users must be considered in the water resources allocations and drive investment in more sustainable practices. These challenges are all driving opportunities for European companies with appropriate technology and services to find markets in China. However, China is a large, complex and confusing market to enter and there are many barriers in the way of starting and successfully sustaining a business there. Products need to adapt to the local requirements and companies will need to develop their relationships with partners and clients as well as complying with the local business processes. Winning contracts and orders will also require an understanding of the procurement processes. The letting of contracts for infrastructure delivery through Public Private Partnerships (PPP) is an important mechanism for achieving the objecti es. Over the last two decades water supply and wastewater treatment has become a mixture of public provision by local government departments and contracting out through BOT, TOT and concession agreements to first international and now national utility companies. New rules require that ALL new environmental infrastructure is to be provided by a PPP mechanism. The procurement processes for major infrastructure projects are complex with feasibilities and approvals required at local and central levels before entering the stage where bidders can position themselves in the competitive bidding process. Knowing when to engage in this process is challen ging; if you chase projects too early you may waste effort on projects that will never happen, if you engage too late the best partnerships will already be locked down. Understanding the processes and the position of projects in this pipeline is vital to success in choosing the right partners to bid with. ii Over the years, these procurement processes have developed many barriers for foreign companies seeking to compete fairly with increasingly strong local companies. There have recently (April 2017) been State Council notices on reform of procurement processes to make them more open, transparent and to encourage fair competition between local and foreign bidders. Though there is some way to go in seeing these reforms implemented there is hope that some areas of the market may become more accessible in future. Water services used to be provided by local government departments at very low cost to the users. This did not encourage efficiency or good quality. This public provision approach has been reformed to various hybrid public and private partnerships with the cost of water to users, and the price returned for resource use, having increased significantly. Water operations are now generally run on a near commercially viable basis, though there is still a degree of subsidy at various levels. Chinese Water Utility companies have evolved from BOT / TOT operation of water supply and wastewater treatment plants to delivering integrated water and energy utility services to the municipalities. In many cases half their business now is construction of urban environmental infrastructure such as parks, river restoration schemes and ecological housing developments to meet Sponge Cities standards. This is a very different role for “water” companies in China, reaching into whole urban catchments, than is generally seen in Europe. For industry there is also very active development of PPP and EPC arrangements for the provision of i ndustrial wat er treatment processes. In the agricultural sector village communes have been able to s et up agricultural equipment enterprises which can operate regionally to buy and lease equipment and supporting services and labour to farmers for the provision of irrigation, fertigation, flood and drought management and related services. These reforms are opening some routes to market for European companies while also enabling the development of a very large and powerful Chinese water sector industry. Companies such as Beijing Enterprises Water Group have revenues of many billions EUR and are bigger than most EU water companies, approaching Veolia and Suez in their scale of operations. They are now looking at overseas investments and operations. The major construction contractors such as China State Construction Engineering Corporation are setting up both water and environmental services divisions and overseas investment companies to target international markets. Under China’s One Belt One Road Programme Chinese companies are becoming major Infrastructure providers around the world including in the water sector, with strategic support from their government, so the “Chinese Market” has also now become a route to accessing a global market. European water sector innovators currently have a window of opportunity to build partnerships with Chinese companies where they are starting from the stronger position of being technically more advanced and experienced and so can negotiate good terms. However, with a very strong educational system and organised system of government supported research, innovation and systems f or bringing to market, it is only a matter of years before China is able to pull ahead and will not need to find such favourable terms when forming partnerships. The leading Chinese water sector companies are now in the top 3 globally by size and revenue, with massive ongoing investment to the sector, a regulatory environment dominated by public private partnerships and an expansion by Chinese companies to overseas markets there is considerable opportunity for European companies with the right innovative technologies to form partnerships that will achieve access to global markets and growth if they can be supported in how to effectively adapt to the Chinese market. Most small and medium sized companies do not have the resources to do this on their own. These factors are common with other sectors and if the European Union is to be effective at building its place as an innovation led open and exporting economy companies need to be supported in engaging in sometimes difficult to understand foreign markets. To successfully obtain a foothold in China, EU water sector companies will have to adapt their products and business processes to fit the local culture and market. In all cases the provider of the technology must be able to demonstrate the business case for customers to adopt their solution rather than the status quo or cheaper local alternatives by quantifying the added value provided through innovation, quality, reliability, and efficiency. They must build a viable and robust business in China, working together with local partners and customers. We have identified the following proven strategies to achieve this:

  1. Understand the market and the procurement processes – who are the real clients and key partners and which actions need to be taken at which stage of the procurement process; from profile raising and intelligence gathering to positioning, partnering, tendering and the delivery of projects;
  2. Match the product that the company is selling (be it services, expertise or technology) to the needs and expectations of the clients – these are likely to be quite different to typical European client iii expectations. This will mean doing research and listening very carefully to what potential clients are demanding;
  3. Map the revenue streams of the clients and the supply chain – make sure that the company is entering the deal at a point at which clients have revenue available with which to pay the company;
  4. Companies will have best chances of successful entry in niche, emerging or high -risk areas of the market;
  5. Kee p the product simple so that clients can easily understand its purpose and function;
  6. Adapt, tailor and package the product to comply with local standards and market prices. This may mean adapting any patented IP to fit local conditions;
  7. It will be very difficult to find success in commodity markets where your costs will inevitably be higher than the local competition’s. Define a premium product that still offers good value in the longer term. If done successfully, it is possible to achieve very high margins in China – potentially higher margins than in the EU;
  8. Though the greatest skill that Europeans have is the ability to efficiently manage complex integrated systems, this can be very difficult to explain to Chinese clients who are likely to be used t o the more compartmentalised Chinese approach to operations. Therefore, express yourself in simple terms;
  9. Have strategies to protect your IPR, either by filing for patents or maintaining secrecy;

10. Assume that any IP -related secrets you bring to China will be compromised, as both data security and trust can be low in China. Therefore, keep essential trade secrets offshore wherever possible;

11. Acquire knowledge of the financing options available to support the growth of your business. If finance is required, ensure you have staff who fully understand Chinese banking and accounting procedures;

12. Understand the reforms to the procurement regulations and the actions now available to push for fair access to bidding processes;

13. Invest in building relationships with technical, business and financial partners and exercise due diligence.

 Entering the China market requires commitment of time, resource and energy. Prepare, plan and budget. If not serious about it then don’t waste ef forts dabbling. 

Fonte: www.isprambiente.gov.it