Parched China lures foreign water investors

By Sophie Taylor and Alison Leung

SHANGHAI/HONG KONG (Reuters) - When Chen Xiangwen first moved to Beijing eight years ago, she expected to be able to drink the tap water. After all, she was living in a city about to host the 2008 Olympic Games.

But like millions of Beijingers, Chen soon discovered the tap water was unfit to drink and was a possible health hazard.

"The tap water had a funny smell, and it seemed like there were all sorts of particles in it," said the 30-year-old consultant. "Once I found a convenient place to buy bottled water, I never looked back."

More than half of the water in China, the world's fourth-largest economy, is unfit to drink. Last year, around 48 million people living there lacked sufficient drinking water.

Well aware of its shoddy environmental image, China has declared cleaner water as one of its major policy goals and it has thrown open the doors to foreign firms eager to grab a piece of the fast-growing $14.2 billion market.

It is now one of Asia's most promising investment destinations for water treatment, drawing in the likes of Veolia Environnement and Suez. Local rivals, such as China Water Industry Group and Guangdong Investment, have also sprung up.

The government's stance on water has given China an edge over regional rival India in drawing in foreign investment.

"India has decided to invest in the water sector mostly through public money, but China has decided to allow private companies, including foreign investors, to participate in water supply and sewage products," UBS analyst Christopher Wong wrote in a recent research note.