Since the beginning of the “Open-Door-Policy”, China has scored remarkable achievements. Its GDP has grown from 150 billion to 1.65 trillion USD and its per capita GDP from 190 to more than 1,200 USD. However, the resources that such growth demands have raised concerns about the long-term sustainability and hidden costs of the growth. Many of these concerns are associated with the state of Chinas water resources. As demand for water has increased, so too have problems with water shortages, pollution, falling groundwater tables and flood/drought damages.
To tackle these challenges the Chinese government increasingly encourages foreign companies to engage in the Chinese water market.
Market research studies claim that this market holds promising business opportunities for both domestic and foreign companies. This thesis questions this observation from a foreign investor’s perspective. It shows that the Chinese water market indeed holds business opportunities, but that these opportunities are mainly tied to certain sectors and regions. A questionnaire carried out between foreign managers showed that these opportunities go together with high market entry barriers and high market risks. Therefore, this thesis pays special attention to potential risk treatment measures which take the position of foreign companies and the special characteristics
of the Chinese water market into account.
The paper contains six chapters. After an analysis of the business environment of the Chinese water service market, the thesis describes business opportunities for foreign companies. Afterwards potential risks for foreign investors are discussed and measures for a strategic risk treatment introduced.
Table of Contents
1. Introduction
2. Literature review
3. Business environment of the Chinese water service market
3.1. Market definition
3.2. Dynamic development of the Chinese water service market
3.2.1. Political Development
3.2.2. Economic development
3.2.3. Social development
3.2.4. Technological development
3.2.5. Legal development
3.2.6. Ecological development
3.3. Competitive situation and rivalry
3.3.1. Firm strategy, structure and rivalry
3.3.2. Demand conditions
3.3.3. Related and supporting industries
3.3.4. Factor conditions
3.4. Summary
4. Business opportunities for foreign companies
4.1. Market segmentation
4.2. Business opportunities in selected water service sectors
4.2.1. Water treatment
4.2.2. Water supply and distribution
4.2.3. Maintenance and repair
4.2.4. Disposal of sewage sludge
4.2.5. Seawater desalination
4.2.6. Consulting services
4.3. Participation opportunities in selected public projects
4.3.1. Nanshui-Beidao (South-North water rerouting project)
4.3.2. Protection of important river, lake and water reservoir areas
4.3.3. Water saving and water management projects
4.3.4. Ecological sewage water and sanitary projects
4.4. Summary
5. Risk management for foreign investors
5.1. Risk identification and assessment
5.2. Risks checking and analysis
5.2.1. Water price development
5.2.2. “Take or pay” versus “fixed return”
5.2.3. Government’s breach of faith
5.2.4. Competitive bidding procedure
5.2.5. Loan term limitations
5.2.6. Land use rights
5.3. Recommendations for potential risk treatment
5.3.1. Estimate the competitive situation
5.3.2. Aim for mutual benefits
5.3.3. Pick winnable battles
5.3.4. Build up a polychronic planning system
5.3.5. Secure information flow
5.3.6. Attain strategic advantages
5.3.7. Marshal adequate resources
5.3.8. Lean winning ways
5.4. Summary
6. Conclusion
Objectives & Scope
This thesis examines the business environment and potential opportunities for foreign companies within the Chinese water service market, evaluating whether the market truly offers the promise often claimed by research. It further addresses the significant market entry barriers and risks faced by foreign investors, providing strategic recommendations for effective risk management and successful market participation.
- Analysis of the Chinese water market's dynamic business environment.
- Evaluation of business opportunities across specific water service sectors.
- Identification and assessment of primary risks and market entry barriers for foreign investors.
- Development of a strategic risk management framework based on empirical findings.
- Strategic recommendations for successful market engagement.
Excerpt from the Book
3.3.1. Firm strategy, structure and rivalry
The local conditions affecting the firm very much depend on the available participation models for foreign investors. To engage in the Chinese water market foreign investors can refer to five types of PSP models: management contracts, leases, concessions, Joint Ventures (JV) and Build-Operate-Transfer projects (BOT) (Figure 3). Each PSP model specifies operation terms and boundaries for the firm’s project. It contains regulations for ownership, operational and management responsibility as well as capital investment responsibility. In the following the three most important PSP models for foreign investors are introduced.
The first PSP project in greater China was signed in 1985 in Macao. It was a concession contract. A concession contract transfers the responsibility for operations, management and new capital investments to the company, while the government retains ownership of the assets. The company is responsible for the whole system. However, concession contracts have been slow to catch on in the mainland, where tariffs are much lower and priority has been given to expanding capital investment over service efficiency (ICF, 2004, p. 2).
In mainland China, the first PSPs in the water sector were standard Build-Operate-Transfer (BOT) projects. In a BOT-project the company finances, constructs and operates new facilities for bulk supply. However, it does not play a role in distribution or retail. At the present BOT projects are the most common PSP-model applied by foreign investors in the Chinese water market. The first large-scale BOT projects in Shanghai and Chengdu were wholly foreign owned.
Summary of Chapters
1. Introduction: Presents an overview of the Chinese water market challenges and defines the study’s goal to provide a realistic assessment for foreign enterprises.
2. Literature review: Surveys existing research on PSP models and reform challenges within the Chinese water sector, identifying a gap regarding comprehensive risk evaluation.
3. Business environment of the Chinese water service market: Analyzes the market from both macro and micro perspectives, including a PESTLE and Diamond Model framework.
4. Business opportunities for foreign companies: Evaluates specific industry segments based on market segmentation and discusses potential in public projects.
5. Risk management for foreign investors: Identifies and analyzes primary risks through manager questionnaires and provides a strategic framework for risk treatment.
6. Conclusion: Summarizes the key findings and provides a perspective on the future development of the Chinese water market for foreign investors.
Keywords
water market, water supply, water treatment, PSP projects, risk management, PESTLE analysis, Diamond of Nations, China, market entry barriers, investment strategy, business opportunities, environmental sustainability, service sector
Frequently Asked Questions
What is the core focus of this research?
The work focuses on assessing the business environment, opportunities, and risks for foreign companies entering the Chinese water service market.
Which key areas of the water market are highlighted?
The study covers sectors such as water treatment, water supply and distribution, maintenance and repair, sewage sludge disposal, seawater desalination, and specialized consulting services.
What is the primary objective of this thesis?
The goal is to draw a realistic picture of business opportunities for foreign enterprises, specifically bridging the gap in research regarding comprehensive risk management strategies.
What scientific methods were employed?
The methodology includes in-depth literature research, interviews with political decision-makers and company representatives, and the evaluation of questionnaires distributed among foreign managers.
What topics does the main section cover?
The main part analyzes the macro and micro business environment, evaluates sectoral opportunities, and proposes strategic risk management measures derived from the 'Four-T-Model' and Sun Zi's theories.
Which terms characterize this research?
The work is characterized by terms such as PSP projects, PESTLE analysis, Porter's Diamond Model, and strategic risk treatment.
How does the author evaluate the "must-win-market" claim?
The author argues that while the market is promising, it is not a "must-win-market" due to high market entry barriers and complex regional and political challenges.
What specific strategic advice is offered to new investors?
The research advises building strong political relationships to secure early tender information, employing flexible "polychronic" planning to adapt to rapid changes, and focusing on "win-win" solutions to align with government interests.
- Quote paper
- Jan Hutterer (Author), 2007, China’s Water Service Market, Munich, GRIN Verlag, https://www.grin.com/document/84521
