China's Rapid Industrialization and Urbanization Signifies Growth Potential of Environmental Industry, Says Frost & Sullivan

Posted on: Monday, 15 June 2009

SINGAPORE, June 15 /PRNewswire/ -- As the global economy goes through the worst financial crisis since the Great Depression, countries in Asia Pacific have not been spared and experienced a slowdown in economic growth. In the first quarter of 2009, China's GDP expanded by 6.1%, its slowest in the last 10 years.

According to Frost & Sullivan Asia Pacific Consultant of Environmental & Building Technologies Practice Ranajay Dasgupta, the challenging business climate impacted the performance of the environmental industry in China, though some sectors were more adversely affected than the others.

"The quarter saw a decline in industrial production, especially in the export-oriented manufacturing sector. The volume of industrial waste generated was low, and revenues from industrial waste treatment fell compared to the same period a year back. However, demand for waste management services in municipal sector continues to remain strong," he said.

He also added that though the economic environment will continue to remain challenging for the remaining half of the year, the Chinese government's emphasis on market recovery, environmental policies, and environmental projects for all sectors and entities will help the waste management market to return to its high growth state.

"The water and wastewater industry saw strong earnings from municipal projects, while earnings in the industrial sector dipped. The market is expected to grow by 10-12% this year and expected to recover to an annual growth rate of 16% post 2010," he continued.

This is aided by the rapid industrialization and urbanization of emerging economies in Asia. Around 48 million people migrated to Asian cities in 2008, a figure expected to rise sharply in coming years.

"It is estimated that the water treatment rate in Chinese cities is less than 60%. The growth and lack of infrastructure is putting intense pressure on urban infrastructure, water and waste management services, and signifies the growth potential of the environmental industry in coming years," said Dasgupta.

According to Dasgupta, Asian countries are already suffering from the effects of climate change and both the developed and the developing nations have regulations in place to address the issue. However, conformance to the rules has been low in developing countries but going forward, governments will enforce a stronger adherence to the increasingly stringent pollution control requirements.

"There is increased emphasis on the prevention and control of all forms of pollution like water, air, soil and solid waste; and the promotion of technological advancement by adoption of foreign as well as innovative indigenous technology. Foreign companies with superior technical expertise will find more opportunities in teaming up with Asian companies to help them meet the stringent pollution control standards," he added.

In terms of industry specifics, Dasgupta said that the rising water shortage, especially in Northern China, is acting as a stimulant for growth in wastewater recycling and desalination.

"While the civil contracting market continues to be dominated by local players, the equipment and technology markets will see more international players from US, EU, and Japan extending their footprints in China through both organic and inorganic growth routes. At the same time, Chinese players will become more technologically innovative, export-oriented and give stiffer competition to international players," he said.

As per the 11th Five-Year Plan (2006 - 2010), the total investment in the water industry will be $77.72 billion. "Rapid industrialization and urbanization will need major investments in environmental infrastructure, and thus will continue to create vast opportunities for contractors, and equipment and technology suppliers," says Dasgupta. "Increased government focuses on environmental issues, stronger enforcement of legislation and international pressure will spur growth in China's environment sector in coming years."

Frost & Sullivan does not foresee any major cuts in environmental budget. The environmental sector in Asia will be driven by China, India, and Southeast Asia, where socioeconomic growth will continue to create vast opportunities.