Week 23: Water is an increasingly important natural resource investment

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Week 23

WATER IS AN INCREASINGLY IMPORTANT NATURAL RESOURCE INVESTMENT

Water is quickly becoming a far more precious commodity than oil…and nowhere is this more evident than in China, where the country needs to build hundreds of new water treatment plants in an attempt to ward off water shortages which are a serious threat to the country’s growing economy.

It might sound counter intuitive but drinking water is a far more precious commodity than oil and while water largely covers this planet of ours, less than 3% of it is fresh water. And the presence of pollution and disease has made much of that water undrinkable. Unlike with oil, no amount of technological wizardry can replace water.

Water resource enthusiasts know these facts well and are familiar with all of water’s charms … but the biggest is the simple scarcity of clean water. There are few industrial countries in the world feeling that scarcity more acutely than China. Its water needs are more critical than its much-discussed power needs. On a per capita basis, China’s water reserves are only about one-quarter of the global average. Worse, the distribution of people and water creates its own logistical obstacles. Nearly half of China’s population resides in the northeastern provinces, where only 14% of the water resources are located.

These facts provide endless challenges for the Chinese. Water shortages are a serious threat to China’s booming economy. It costs billions each year in lost output. Plus, water efficiency in China is way behind that of developed countries. It is estimated that for an equivalent amount of work, China uses approximately 7-15 times more water than do developed countries, and with usable water supplies steadily diminishing, will not their competitive position also begin to erode?

Most investors do not fully appreciate this until they visit China and talk to Chinese business people. Even Chinese of cials … prone to covering up or understating the extent of problems… sound alarmist when it comes to water. One of cial recently said China’s problem is “more serious and urgent than [in] any other country in the world.”

China’s rapid industrialization has outpaced its water infrastructure, which is on the verge of collapse. As Minister of Water Resources Wang Shucheng noted, “The price of China’s economic boom is being paid in water.”

Two-thirds of China’s 600 largest cities don’t have enough water; half of these cities have polluted groundwater. Less than 15% of China’s population has safe drinking water from tap and this trend is worsening as under investment and natural occurrences take their toll.

For further perspective, consider this: China has about as much water as Canada, but a population 40 times as large.

Some alarmist observations have suggested that we could see a cartel of water-exporting countries emerge over the next decade, in a style not unlike the Organization of Petroleum Exporting Countries. With water increasingly becoming seen as ‘blue-gold’, it is conceivable that in the future we might see similar moves to surround and commoditise the world’s fresh water sources, just as the powers of the time divided up the world’s oil, in the previous century.

Whether or not you choose to believe such alarmist concerns, it is clear that the demand for clean water is real. In an attempt to avert crisis, China plans to build hundreds of new water treatment plants. But for now, bottled water is the preferred choice … even among the Chinese, at least among those who can afford it.