China has a population of 1.3 billion. Its economy grew at a rapid annual rate of over 9%, and its urbanization growth increased by 10% in 2005. However, according to the Bank of China International ("BOCI"), and various government officials, more than 400 cities and 13 provinces and regions in China currently face a water shortage problem. There are three main drivers that contribute to the current water crisis in China.
Investments in Chinese water utilities
* Information presented in this section is largely based on the "China Water Sector" Report published by the Bank of China Int. on November 25, 2005

According to the Deutsche Bank AG, the main contributor to the water crisis is the lack of coordinated national infrastructure to distribute water across China. This is exacerbated by the fact that the North has only 19% of the water in China yet this area contains 47% of the population, produces 45% of the GDP, and contains 65% of the cultivated land in the country.
Investments in Chinese water utilities.
Worldwide, per capita water availability is 16 times greater than it is in China's most water scarce areas. According to accepted world standards of water scarcity, the water supply in all of North China is now at just ¾ of the recognized danger level, and in the North China Plain area the annual water supply is now at a crisis level of only ½ of the minimum world standard to sustain public health and safety. The Chinese government now recognizes this to be a serious issue, and is looking to the private sector for help and expertise in both the distribution of water from other parts of the country and the enhancement of inefficient water systems.

A change in the pattern of water consumption in China has accompanied the country's rapid economic growth. China's water resources per capita are approximately 2,300m3, which is only a quarter that of the global average. At present, shortage in irrigation water in China's agricultural sector amount to over 30 billion m3 per year on average. There are more than 30 million people in rural areas who do not have access to drinking water and more than 400 cities (out of 668 cities) in the country that are facing a water supply shortage. Water shortage in urban areas of China amounted to 1,600 m3 per capita per day, and annual industrial product value affected by water shortage amounted to more than $200 billion. It is also affecting approximately 40 million of the urban population.
Investments in Chinese water utilities.
While water demand is rising, uneven water distribution, falling groundwater tables, poor efficiency of utilization, as well as pollution are contributing to the decline and deterioration of water resources, which had led to more acute water scarcity in the world's most populous country.

China's surface and ground water quality has been seriously degraded in the absence of effective pollution controls. Currently, 80% of the rivers in the Hai and Huai River basins are classified as very highly polluted and unable to meet any designated beneficial uses.
Investments in Chinese water utilities.
Sources of pollution include rapid urbanization, industrial development, rising population, as well as increasing numbers of township and village enterprises and livestock operations in rural areas. Pollution has had a negative impact on the environment and public health. Because water can become unfit for different uses, pollution has a significant impact on its availability.

The poor water quality in rivers is mainly due to the low sewage treatment rate ("STR"), which stands at 42% for the whole country and is as low as 20% in most third-tier cities.
Investments in Chinese water utilities.
It is noted that Southern China, which is still seeing an economic boom, has a very low STR. Due to relatively richer water resources in the south, sewage treatment fees ("STF") have traditionally been lower than those for the north, which has led to insufficient investments in sewage treatment projects in Southern China.

According to the central government’s strategic planning for China's Eleventh Five Year Plan, the country's average STR should be higher than 60% by 2010. Facilities will be constructed in northern China to improve further the water-recycling rate, which currently stands at only 6% for the whole country. This represents an enormous opportunity for investors to profit from the construction of such facilities.