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Water Prices in Chinese Large and Middle Cities Are Being Raised and the Investment Outlooks of the Water industry Are Optimistic

www.shcri.com From 2000 to 2008, the water prices in Chinese cities grew steadily.

 

According to statistics, in 2007, the average water price of Chinese 36 major cities was 1.63 RMB (0.232 USD) /m3, rising by 0.55 RMB (0.076 USD)/m3 compared with 2000. The growth range of the sewage treatment charge was much larger, from 0.25 RMB (0.03 USD) /m3 to 0.70 RMB (0.1 USD) /m3.

 

In 2009, the water prices in Chinese cities have begun to speed up rising. Since January 1st of 2009, the price of the running water in Guangzhou began to rise comprehensively. After Nanjing raised the price of the running water on April 1st, the plans of raising the price of the running water were also under discussion in Wuxi, Yangzhou, Changzhou, etc. On April 27th, Shanghai Development and Reform Commission held the hearing of the water price for residents. On May 6th, Shenyang Price Bureau held the hearing of adjusting the price of the running water and the collection standard of sewage treatment charge. Though the final plan of price adjustment hasn’t been confirmed, the raise of the water price is inevitable. On May 10th, Beijing Water Authority revealed that it would carry out the measures of adjusting the comprehensive water price and publishing rewarding methods for water saving to release the water crisis. Meanwhile, some cities in Central China and the West are considering raising the water prices. On May 20th, Kunming Development and Reform Commission published the notice that the single price of water for residents would be increased by 0.8 RMB/m3 since June 1st. In the beginning of June, Zhoukou and Zhumadian of Henan Province took the initiative in the whole province to hold the hearings of raising the water price. On June 30th, Yinchuan held the hearing of adjusting the sewage treatment charge. On July 11th, Luoyang in Henan Province declared that it would hold the hearing of adjusting and reforming the water price of cities. In general, the raise of water prices in most Chinese cities is basically inevitable.

 

There are mainly two reasons for the raise of the water prices in China. First, at present, the water price in China is in a low level. The water supply enterprises are facing operational pressures. And it is not conductive to carry out the price constrain mechanism and improve the awareness of citizens to save water. According to the statistics by March of 2009, the average water price in Chinese 36 large and middle cities was 3.77 RMB/m3 (0.55 USD, including the sewage treatment charge), rising by 4.7% over the same period of the last year. Second, for a long time, the constitution of Chinese water price has been unreasonable and the price is too low. It can’t reflect the degree of scarcity of water resources and the treatment costs of water environment. These factors have resulted in the severe waste of water resources at present and the water pollution can’t receive effective treatment.

 

Chinese water prices are divided into three parts: first, the costs of the raw water; second, the costs of operation; third, the coats of taxes. Among the three parts, the costs of the raw water account for 20% of the water prices, the costs of taxes account for about 10% and the operational costs take up the rest 70%. There are several adjustable factors in the operational costs which can be taken into consideration, such as the costs of cleaning water, distribution costs, plenty of pipe networks, management costs and profit costs. The costs of cleaning water need to be increased, as the water quality and the service quality are been improved. There were 35 relevant testing standards at first and now there are 106. The increase of the costs in the process of improving the water quality is inevitable.

 

Since China permitted foreign investors to invest on the urban pipe networks for water supply and drainage in 2002, the water areas in many cities have been operated jointly by foreign-funded enterprises. Foreign-funded enterprises usually enter Chinese market by purchasing the shares of domestic water enterprises at a high price. On one hand, foreign-funded enterprises focus on the long-term investment, and they prefer the investment returns in the next 10 or 20 years. On the other hand, some optimistic factors did exist at that time. But according to the present situation, most enterprises with foreign investment are suffering losses in the major business and have to depend on the subsidiary business. The balance between the major business and the subsidiary business brings in an operation with small profits. The raise of the water price is good for enterprises to improve the profit level.

 

Shanghai Pudong Veolia Water Co., Ltd is the first sino-foreign joint venture of French water giant, Veolia, when it entered Chinese market. It is a water supply enterprise providing integrated water services including production, distribution and customer services in China. But during the 7 years since it was established, it has been adjusting the water price, bringing about the dissatisfaction of some shareholders. Since July of 2009, the water price in Shanghai was raised from 1.84 RMB (0.269 USD)/m3 to 2.30 RMB (0.336 USD)/m3.

 

In China, the adjustment of the water price has also received many objections. Some people pointed out that the raise of the water price will affect the living standard of low-income people. Others blamed the irrationality of Chinese present mechanism of the water price adjustment.

 

At present, the adjusting procedures of Chinese water price are as follows: the water supply departments turn in the application of the water price adjustment, and local price supervision departments access the costs according to Measures of Supervision of the Costs of the Water Price, then they organize citizens to take part in the hearing to determine the time and range of the price adjustment.

 

However, Measures of Supervision of the Costs of the Water Price in China haven’t been published. At present, during the process of the price adjusting game between the public and the water supply departments, the information is completely unsymmetrical, resulting in the doubts of the public upon the rationality of the price raise.

 

Source: China Research and Intelligence

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