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By Nick Hodge

You've probably heard about the recent flooding in China (and in Pakistan, but we're not focusing on that today).

Over the weekend, the Yalu River in Northeast China swelled to dangerous levels, killing four people and displacing 100,000. This comes after floods in the South and West killed almost 4,000 earlier this year.

You've heard about this because it's the kind of story that's come to be known as "man bites dog."

Common occurrences — like dogs biting men — rarely make the news. But throw a little twist in there — some urgency, some natural violence, some death — and these kinds of stories become an editor's dream. By extension, this type of reporting makes statistically uncommon events seem to occur with great frequency.

There are plenty of examples of this: shark attacks, plane crashes, homicides... the list goes on. We wouldn't think these incidents were as common as we do if the headlines pointed out to us every day that passed without one of them occurring.

So if you didn't know any better — based on the headlines this summer — you'd think China was going the way of Venice.

That's a good way to miss out

Just as allowing "man bites dog" stories to keep you out of the water or off a plane can mean missing out on great experiences; falling victim to the Chinese flooding fallacy can mean missing out on a great investment.

Because the everyday story in China isn't flooding...

It's drought.

At the very same moment the media is caught up with the attention-grabbing story of raging rivers and washed-out villages, China began its biggest relocation program since the construction of the Three Gorges Dam.

Almost half a million Chinese will be forced to relocate to make way for the South-North Water Diversion Project, an endeavor aimed at diverting the Yangtze River to the Yellow and Hai Rivers to quench the almost waterless North, which includes Beijing.

Why?

Maybe because China has 20% of the world's population but only 7% of the world's water resources...

Maybe it's because half of China's largest 660 cities constantly face water shortages...

Maybe it's because 90% of Chinese cities' groundwater and 75% of its rivers and lakes are polluted, leaving 700 million people* to drink contaminated water every day.

(*If you're keeping track, that's twice the population of the United States.)

And it's definitely because areas south of the Yangtze have 80% of the water and 36% of the land, while the North has only 20% of the water and 64% of the land. I guess Beijing is China's Las Vegas — only capable of being built through immense water infrastructure projects.

This isn't going away

In an effort to deal at least partly with this problem, China is willing to relocate an entire river and part of its population. But the efforts won't stop there.

Just as China is going to great lengths to secure energy resources for its booming population, it is going to similar lengths to secure water resources. Not just moving rivers, but initiating a sustained effort to bring its water treatment infrastructure into the 21st century.

Two companies fundamental to that progress will be Tri-tech Holding (NASDAQ:TRIT) and Duoyuan Global Water (DGW).

And wouldn't you know it.

According to a press release, Tri-Tech “received a $6 million contract for the upgrade and expansion of a wastewater treatment plant in Kuitun City of Xinjiang Uygur Autonomous Region” just last week.

And Duoyuan recently beat earnings estimates, thanks to a surge in water equipment sales.

According to Reuters: “Revenue from water reuse equipment jumped 45% on continued demand for the company's circulating central water processors, fully automatic filters and electronic water conditioners. Water purification equipment revenue increased by 36%.”

This is a long-term investment that goes well beyond the market's recent tribulations.

I'd buy them, hold them, and love them. And keep in mind that the sensational headlines you hear and see in the media rarely tell the whole story. Call it like you see it.

Source: Finding Opportunity in Chinese Water Stocks