Global Economic Crisis

1
Global Economic Crisis Impact on Water Industry
in Asia China
PECC Annual Meeting Washington May 13, 2009
2
World Economies
Overview of World Economies
Sources The Times IMF
3
World Economies
Overview of World Economies
Sources The Times IMF
4
Asia Better Off than Most?

• Regional economies are fundamentally sound, but
  export dependence is a big vulnerability
• Capital inflows are diminishing, hurting
  investment prospects and real sector
• Can domestic demand compensate for the worsening
  external environment?
• South Korea is particularly vulnerable
• China has suffered (the collapse in the stock
  market, shrink of auto and residential sales),
  but may be able to weather the crisis better than
  most

5
Real GDP Growth in Asia/Pacific Economies
Percent change
Source the Economist
6
Chinas Economy- Slow Down

• Growth slow down - 13. in 2007 to 9.0 in 2008
• Exports fell in the last 2 months of 2008
• Production of electricity fell in the second half
  of 2008
• Purchasing Managers Index (PMI) fell in the
  second half of 2008
• Weakness of auto sales
• Fall of residential home sales
• Job losses factory closures

7
Chinas Economy - Stimulus Plan
8
Chinas Economy - Stimulus Plan

• 10 Points Plan
• HousingMore affordable and low-rent housing
• Rural infrastructureImprovement of roads and
  power grids in the countryside, and water supply
  projects
• TransportMore rail links and routes for
  transporting coal. New airports in the west.
• Health and educationMore hospitals in smaller
  towns and cities. More schools in the western and
  central regions, and for children with special
  needs countrywide.
• EnvironmentFocus on sewage and waste treatment
  facilities and preventing water pollution.
  Accelerated green belt and natural
  forestplanting programs. More energy-conservation
  initiatives and pollution-control projects.

9
Chinas Economy - Stimulus Plan

• 10 Points Plan
• IndustryFurther subsidies for high-tech and
  service industries.
• Earthquake reconstructionMore funding to rebuild
  areas damaged by the Sichuan earthquake.
• Wealth creationIncreased grain purchases and
  farm subsidies to raise rural incomes. A boost in
  pension funds for a wide range of workers. More
  allowances for low-income city dwellers.
• TaxReforms to value-added tax, effective 1
  January 2009. Reduction in corporate tax burden
  of CNY120 billion (18 billion).
• FinanceRemoval of loan quotas and ceilings for
  lenders. Increased bank credit for rural areas,
  small businesses, and companies involved in
  technology, iron, and cement.

10
Water Sector in China

• Chinas economic stimulus package
• Ecological environment (9)
• RMB350 billion (51 billion) goes to ecological
  environment
• Water, wastewater waste treatment
• Rural infrastructure Construction Program in 11th
  Five-year Plan (9)
• RMB370 billion (54 billion) big slice goes to
  water
• Safe drinking program and wastewater treatment in
  rural areas
• Sichuan Earthquake disaster fund (25)
• RMB1 trillion (147 billion)
• Water, wastewater, methane gas digesters, roads,
  electricity

11
Water Sector in China

• 2009 Environment Investment Plan in Major Cities
• Beijing RMB 30.5 billion investment on
  environment
• Shanghai RMB 86 billion for 20092011
  Environment Action Plan
• Chongqing RMB 8.5 billion for 2009 water
  resources projects
• Guangzhou RMB 48.6 billion to clean 121 rivers

12
Water Sector in China

• 2007-2008 Accumulative Fixed Asset Investment
  Increase

Source China Economy Net
13
Veolia Water in China
HEILONGJIANG
Harbin
JILIN
Changchun
LIAONING
XINJIANG
HEBEI
China
INNER MONGOLIA
Shijiazhuang
SHANXI
Xining
SHANDONG
QINGHAI
GANSU
Xian
HENAN
XIZANG
SHAANXI
JIANGSU
ANHUI
Lhasa
SICHUAN
ZHEJIANG
HUNAN
Fuzhou
JIANGXI
GUIZHOU
FUJIAN
YUNNAN
GUANGDONG
GUANGXI
Legend
Nanning
Veolia Water
Shenzhen Water Group
14
Water Sector in China Case Study
15
Water Sector in China Case Study

• Shanghai Pudong Project
• 50-year contract to 2.65 inhabitants for the
  operation and maintenance of full water services
  in the key business district of Pudong, Shanghai,
  including water production, distribution and
  customer services.
• First significant public-private partnership for
  full water services in China

16
Water Sector in China Case Study
Shanghai Pudong Veolia Water
Total water consumption see 7 increase in 2008
despite economic downturn globally. Residential
consumption remain strong increase in Q4 2008 and
Q1 2009, but industrial volume declined in Q4
2008 and Q1 2009 by 6 and 4.2, exhibiting the
impact from the economic change. Total water
sales shrink by nearly 6 in Q1 2009, reflecting
the impact of global economic crisis taking
effect on the industries in the city.
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Water Sector in China Case Study

• Tianjin Shibei project
• 30-year Contract to supply 3 million inhabitants
  with drinking water in Tianjin. The project will
  cover the district of Shibei, the Northern part
  of Tianjin, and the Binhai district on the
  Eastern coast.

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Water Sector in China Case Study

• Non-industrial consumption sees increases in
  the Q4 2008 and Q1 2009 at 9.45 and 7.82
  respectively.
• Industrial volume still sees increases by
  12.25 8.69 - higher than the other city
  average, reflecting the fast industrial
  development in this city.

19
Water Sector in China Case Study

• Shenzhen Project
• 50-year contract to supply 3 million
  inhabitants for the production and distribution
  of water, customer relations and the collection
  and treatment of wastewater in the Shenzhen
  Special Economic Zone

20
Water Sector in China Case Study

• Residential consumption sees 4.19 and 3.28
  increases in Q4 2008 and Q1 2009.
• Industrial volume decreases by 12.54 and 19.57
  in the same periods, reflecting heavy impacts
  on industries due to global financial crisis.

21
Water Sector in China Case Study

• Changzhou Project
• 30-year contract to supply 1.65 million
  inhabitants for full water services in Changzhou
  (production, distribution of water and customer
  services)

22
Water Sector in China Case Study

• Domestic water consumption increase shrinks from
  15.7 in Q4 2008 to 4.0 in Q1 2009.
• Industrial water sales see dramatic decreases in
  Q4 2008 and Q1 2009 by 7.7 and 9.7.

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Water Sector in China Conclusion

• Water industry in China is fundamentally sound,
  especially with tariff increase potential in 2009
  in major cities.
• No increase of unpaid bills for water
  wastewater
• The impact on key cities is limited.
• The stimulus plans will see effects by the end of
  2009.
• The effect of stimulus plan on water industry is
  not obvious yet.

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Thank You