Policy Opens the Golden Ten Year Water Sector and Welcomes 4 Trillion Investment

Abstract: The Central Economic Work Conference was held in Beijing from December 12th to 14th. The meeting stressed that unremittingly grasping the "three rural" work, we must do a good job of water conservancy infrastructure construction, expand the scope of small-scale irrigation and water conservancy key counties, and build a new batch of high-standard farmland. The meeting pointed out that the total water conservancy investment during the “12th Five-Year Plan” is expected to be about 1.8 trillion, and about 4 trillion in 10 years. The policy shows that China's water investment market will usher in a "golden decade." So, which industries can 4 trillion investment benefit? In the face of such a huge cake, what are the investment benefits? How should investors avoid risks?

The policy opened the golden decade of water conservancy sector ushered in 4 trillion investment in drought and flood disasters at home and abroad, resulting in economic losses, humanitarian disasters and ecological damage, and brought a heavy blow to the economy and society. The outbreak of droughts and floods has also caused direct economic losses and indirect economic losses in China, which have had an impact on macroeconomic growth and have severely hindered and constrained China’s economic development.

From this we can see that increasing investment in water conservancy has no delay. From the perspective of the time distribution of water resources, the inter-annual changes in precipitation in China are relatively large during the year, with 60% to 80% of precipitation concentrated in the flood season. In areas with lower precipitation, the higher the degree of concentration during the year, the greater the inter-annual variation and the easier to form spring. Drought or drought and even drought. From the perspective of the spatial distribution of water resources, the distribution is extremely uneven, which is mainly manifested in the fact that it is more in the south, less in the north, more in the east, and less in the west. The proportion of population in northern China is 46%, and the proportion of cultivated land is 60%. However, the proportion of water resources is only 19%; the proportion of population in the south is 54%, and the proportion of water resources is as high as 81%.

This year, water conservancy work has been brought to a new historical height. The Central Economic Work Conference in December was held in Beijing. The meeting put forward the main task of economic work next year. One of the major tasks is to do a good job of water conservancy infrastructure construction. This is the fourth time this year that water conservancy construction has been mentioned on a very important agenda.

For the first time, the Central Document No. 1 published on January 29, 2011, “The Decision of the Central Committee of the Communist Party of China on Accelerating the Development and Reform of Water Conservancy,” proposed that the average annual input of water resources for the whole society should be twice as high as that of 2010 in the next 10 years. In 2010, the domestic water conservancy infrastructure investment was 232 billion yuan, which was twice as high as 400 billion yuan. The Central No. 1 document has comprehensively deployed the reform and development of water conservancy, which has spurred the charge of the construction of water conservancy projects.

The Central Water Conservancy Work Conference was held in July 2011. This is the highest-level water conservancy work conference at the national level. This means that the water conservancy work is highly valued by the central government and the water conservancy work has been elevated to a new historical height.

On October 12, 2011, the State Council Information Office held a press conference on the “12th Five-Year Plan for the Current Water Resources Situation and Development of Water Conservancy”. The meeting pointed out that the total water conservancy investment is expected to be around 1.8 trillion during the 12th Five-Year Plan period. 10 years is 4 trillion. This 1.8 trillion yuan is mainly used for water conservancy construction in four areas: first, construction of farmland water conservancy, second, construction of flood prevention projects, third, construction of water resources, improvement of urban and rural water supply capacity, and fourth, water and soil conservation and ecological construction. Based on this calculation, the annual compound annual growth rate of water conservancy investment during the 12th Five-Year Plan period will be 15%, and the total investment scale will increase by 155% compared with the 700 billion Yuan in the “Eleventh Five-Year Plan” period.

The water conservancy construction industry is a government-led investment industry. The development of the industry depends on the state's emphasis on water conservancy construction and investment scale. Since the beginning of the year, water conservancy construction has been highly valued by the country, and the investment scale has greatly increased. The water conservancy industry has ushered in major development opportunities. Details: Policy to open up the water market Gold ten years 4 trillion investment Investment in the three categories of companies market expects that the future of water conservancy investment construction will enter a sustained high growth cycle. The water conservancy project is expected to become a new highlight of the agricultural sector. Taking Gezhouba as an example, the company's 2010 newly signed contracts totaled 55.61 billion yuan, accounting for 111.22% of the newly signed 50 billion yuan in annual plans, an increase of 31.98% year-on-year. Among them, the newly signed contract for hydropower projects was 25.76 billion yuan. With the coming of the construction cycle of major investment in water conservancy projects, the future orders growth is expected to exceed expectations.

Analysts believe that water conservancy construction will involve three aspects: First, the construction of water conservancy projects; Second, the development of water-saving irrigation industry; Third, water security, including infrastructure investment in rural safe water use.

From the perspective of related listed companies, there are three types of water conservancy listed companies: First, contractors of large-scale water conservancy facilities and hydropower engineering facilities, such as Anhui Water Conservancy, Gezhouba, and Guangdong Hydropower; Second, the construction of hydropower equipment and construction materials Focusing on Qinglong Pipe Industry, Guotong Group, and Leo Co., Ltd.; focusing on water conservation in large areas in terms of agricultural irrigation and water conservation; and benefiting environmental protection in hydrology monitoring and intelligentization of water conservancy facilities.

Water conservancy equipment companies are waiting to erupt. Qiu Shiliang, chief analyst of machinery industry of Galaxy Securities, believes that the country’s total investment in farmland water conservancy infrastructure construction is 4 trillion yuan in 10 years, and the annual investment is 400 billion yuan, of which, electromechanical equipment investment accounts for about 10% of the total annual investment. 40 billion yuan, according to the pump and motor investment accounted for 50% of the total investment in mechanical and electrical equipment, the annual market capacity of 20 billion yuan. In his opinion, Leo shares and the New Territories pump industry will gain major business opportunities.

Since the investment for water conservancy construction in the first half of the year was lower than the schedule, the investment in fixed assets for water from January to May was only 101.5 billion yuan, which is far from the target value of 400 billion yuan for the whole year. Analysts said that the water conservancy equipment market will show an explosive growth.

Once the market starts, water conservancy investment will inevitably require the use of a large number of engineering machinery and equipment.

According to a person in charge of the Xixiang Industrial Co., Ltd., a person in charge told this newspaper that the growth rate of railways, infrastructure and other industries will slow down in the second half of the year, and the construction machinery industry will become more competitive. Since the water conservancy investment is about to start, companies will actively expand this market.

“Before, the company did not put water conservancy machinery on the same important segment as roads and railways.” Yang Yichuan, president of LiuGong Group and Liugong Director, told the newspaper, “But the company started deploying water-related machinery production and sales policies from the end of 2010. Water conservancy as a refinement of the market to formulate company policies is in an equally important position with railway machinery and highway machinery. This has not been considered before."

The stable income of the water industry is a low-risk investment variety that pursues the Chinese concept in the international market. Under the background of the capital market's devotion to environmental themes, the development of the urban water industry in the service industry posture will become the mainstream trend of industrial development. This model will be sufficient for urban water industry to solve the problem of capital gains under the trend of water industry separation of capital and services.

The source of capital will gradually rely on government investment and industrial investment funds. Sewage treatment is a relatively special municipal utility industry. It has a certain source of income, relatively low investment risk, and a relatively stable return on investment. Therefore, it is favored by social capital.

In 2007, Veolia, Sino-French waterworks, etc., were frequently used; Jinzhou Group continued to sign contracts for new projects in Jiangsu and other places; Zhongkecheng achieved a breakthrough in the industry investment fund; the first share purchase company, Aihua, was extended. Water industry chain, and introduced the concept of watershed management, strategic access to the sewage treatment market in Hunan Province; Huijin Water Services returned to the Chinese market; Guozhong Holdings AH financing model to force the mainland water market; China's water investment company market outstanding achievements; Environmental protection has been designated as a key development direction and many projects have been initiated. Details: The stable earnings of the water industry is a low-risk investment variety Urban water investment channels Urban water infrastructure, especially the products or services created by flood prevention and drainage, large-scale backbone irrigation and drainage projects, and water source projects, have the characteristics of joint consumption and common benefits. The service object cannot be freely chosen or rejected as it is in other industries. It has public goods attributes. Due to its large investment, long construction period, and difficulty in recovery of investment, the average investor is reluctant to invest. However, these projects are crucial to the development of the entire national economy and have huge social benefits. Therefore, for urban water infrastructure that provides public goods or public welfare services, especially urban flood control, water source engineering, large-scale backbone irrigation and drainage projects, governments at all levels must pay special attention, and their input should be included in the scope of government financial investment. .