Chinese study questions water investments by foreigners
3/7/2008 3:36:14 PM

By Peter Huston, Associate Editor, WaterTech online

BEIJING — A Chinese government study on foreign investment in its water industry says that some foreign companies get too much, for much too long, and sometimes promise more than is delivered or even needed, said a February 19 news summary on the Web site of the American Chamber of Commerce of the People’s Republic of China.

The China Urban Water Supply Association, which is under the Ministry of Construction, has issued the report in conjunction with China’s State Development and Reform Commission, according to a February 19 Chinese language story on sina.com.cn. An English summary of the story ran on the Web site of the American Chamber of Commerce.

Although the report is considered important, much of its contents still remain confidential and have not been made public.

The Chinese-language news story was divided into three sections:

● The introductory section says that two investigations into foreign investment into China’s water industry were carried out from October 2007 until January 2008. It said that foreign investment situations are very uneven and are not necessarily “a super-bargain.” The situation has reached a point where there is cause for concern, said Li Zhihui, a Beijing financial official involved with the report.

● The second section, entitled “two sets of research,” reported on the two agencies’ investigations in visits to Lanzhou, Haikou, Chongqing and other cities. Two of the major problems that concern the agencies are, first, that returns from foreign investments are uneven, and, secondly, that some foreign investment contracts include hidden, fixed returns.

Li Zhihui, one of the authors of the report, said in the article that domestically funded enterprises offer net assets of less than 2 percent while foreign-funded investments offer returns reaching as high as 25.6 percent.

Other problems with foreign investment in the water industry mentioned in the article include, first, that foreign investors do not assume as much social responsibility as domestic enterprises. Secondly, some foreign investments obtain a very high rate of return and earn large profits, according to the article. Thirdly, says the article, some foreign investments are structured so that they receive eternal profits even after their work is completed.

An example used in the article is about a Szechuan drinking water company that obtained foreign investment. The agreement guaranteed the foreign investors a promised amount of returns. After the water situation in the city changed, the city water department found itself in a situation where it had to close its own plants to guarantee that the agreement with the foreign investors was kept. It is implied that it would have been better for the city water department to keep its own plants open.

Li Zhendong, the head of the China Urban Water Association, said in the article that although such agreements have been suspended for some time, they were common when foreign investment in the water industry began.

● The third section of the Chinese language article is entitled, “No more blind faith in the water industry.” It says that the national and local governments should no longer have “blind faith” in foreign investment in the water industry.

The article says that some government officials are skeptical of the frequent claims that foreign investment brings high technology and greater expertise, and that often the increase in expertise is only slight and the increased technology is often irrelevant to the problems that the water industry often faces.