Since the 14th Five-Year Plan period, building a high-quality urban sewage treatment system has become an important part of 'pollution reduction and carbon footprint lowering'. The water treatment industry has shifted from mainly focusing on incremental construction to emphasizing both system quality improvement and efficiency enhancement as well as structural adjustment and optimization. During the National Two Sessions in 2023, topics such as sewage treatment, black and odorous water bodies, rural sewage, watershed management, and water resource treatment once again became focal points.
Driven by favorable national policies, innovation in sewage treatment technology and equipment, and continuous expansion of downstream demand, the market scale potential of China's sewage treatment industry is constantly expanding, with urgent need to release production capacity. Top-level design is driving the systematic, balanced, and specialized development of the water treatment industry, and decentralized sewage treatment has broad prospects.
01
Definition and industrial chain of the water treatment industry
The water treatment industry is a fundamental industry that supports the normal operation of the economic system and the stable production and living of residents. It also has the attributes of public utility and environmental protection, and is an inevitable trend in the context of the great environmental protection era. Looking at both upstream and downstream, the water treatment industry refers to the industrial chain formed by raw water, water supply, water conservation, drainage, sewage treatment, and water resource recycling, as well as related derivative industries such as reclaimed water utilization and sludge treatment.
At present, China's water treatment industry is mainly concentrated in two sub-sectors: industrial wastewater treatment and domestic wastewater treatment.Industrial wastewater has a complex composition, containing large amounts of organic matter and other harmful substances. Its properties and volume depend on the nature, process, and scale of industrial production. The wastewater discharged by different industrial enterprises varies in quality and quantity; domestic sewage includes drainage from urban residential buildings, public facilities, and factory living facilities. Domestic sewage has a higher content of organic matter, characterized by relatively stable properties, good biodegradability, and is easy to treat.
The sewage treatment industry chain consists of upstream raw materials, midstream sewage treatment equipment and service providers, and downstream application scenarios.Specifically, upstream raw materials include steel, motors, chemical agents, membrane materials, etc. The midstream provides various levels of sewage treatment equipment and related testing, operation, and maintenance services. The main application scenarios for downstream sewage treatment equipment include domestic sewage treatment and industrial sewage treatment. As a core component of sewage treatment, sewage treatment equipment is at a critical node in the industrial chain.
Source: Analysis by Frost & Sullivan
02
The "two carriages" driving the water treatment industry
1) National policies continue to be favorable, driving high-quality and systematic balanced development of the industry
To improve the ecological environment, promote the resource utilization of sewage, and drive high-quality and sustainable development, the state has introduced a series of policies to guide the development of the wastewater treatment industry, laying a policy foundation for the improvement of China's water environment.Currently, the sewage treatment industry has entered a stage of comprehensive management, shifting from point source pollution control to area source pollution control.
Since the start of the 14th Five-Year Plan period, top-level design and planning in the field of water treatment have increasingly emphasized systematic, specialized, and standardized measures. "Water environment" and "water ecology" have become core focuses, with comprehensive and specialized governance projects such as integrated plant-network-harbor-landscape management, water ecological governance, and special action plans for improving sewage treatment quality and efficiency emerging in an endless stream. The construction and improvement of relevant laws and regulations, as well as the establishment of supervision mechanisms for environmental protection inspections, have also promoted the industry towards specialization, systematization, and coordination.
Source: Analysis by Frost & Sullivan
The specialization, refinement, and coordinated development in the field of sewage treatment are clearly reflected in top-level design. With the emphasis on sewage treatment and resource utilization in the '14th Five-Year' development plan, addressing the long-standing pain point of 'excess at the end-point, insufficient pipeline network' has become a top priority, most notably reflected in the growth in fixed asset investment in public facilities for sewage treatment and its reuse.
Since the "14th Five-Year Plan," fixed asset investment in the construction of public facilities for sewage treatment and its reuse in China has grown rapidly and is expected to continue growing in the future. From 2017 to 2021, fixed asset investment in the construction of urban sewage treatment and its reuse public facilities in China increased from about 55 billion yuan to about 120 billion yuan, with an annual compound growth rate of about 20%. Fixed asset investment related to county towns increased from about 10 billion yuan to about 25 billion yuan, with an annual compound growth rate of about 25%.
During the forecast period, related fixed asset investment is expected to further increase. The fixed asset investment in urban sewage treatment and its reuse public facilities construction is expected to grow from about 140 billion yuan in 2022 to about 320 billion yuan in 2026, with an annual compound growth rate of about 20%. The fixed investment related to county towns is expected to increase from about 34 billion yuan in 2022 to about 88 billion yuan in 2026, with an annual compound growth rate of about 30%.
Source: Analysis by Frost & Sullivan
2) The downstream demand in the water treatment industry continues to expand
With the continuous growth of China's economy, the urbanization process has accelerated, and the urban population has been increasing steadily. The daily life of urban residents and industrial production have led to a year-on-year increase in water consumption, resulting in a large amount of sewage discharge. In recent years, the annual discharge of urban sewage in China has grown rapidly and is expected to continue in the future, thus driving the rapid development of China's sewage treatment industry.
From 2017 to 2021, the annual discharge of urban sewage in China increased from about 59 billion cubic meters to about 73 billion cubic meters, with an annual compound growth rate of about 5%. The annual discharge of county-level sewage in China also increased from about 10 billion cubic meters to about 11 billion cubic meters, with an annual compound growth rate of about 5%.
During the forecast period, China's annual sewage discharge will further increase. The annual urban sewage discharge in China is expected to grow from about 800 cubic meters in 2022 to about 1,100 cubic meters in 2026, with an annual compound growth rate of about 10%. The annual sewage discharge from county towns in China will also increase, from about 110 cubic meters in 2022 to about 140 cubic meters in 2026, with an annual compound growth rate of about 5%.
Source: Analysis by Frost & Sullivan
03
Development trend of the water treatment industry
1The system is improving, from the macro to the micro
Driven by favorable policy environments, China's sewage treatment facilities are becoming increasingly perfect, and the capacity for sewage treatment continues to improve. Both the sewage treatment rates in Chinese cities and county towns are on the rise. From 2017 to 2021, the sewage treatment rate in Chinese cities increased from about 95% to about 98%, and the sewage treatment rate in Chinese county towns rose from about 90% to about 96%. In the future, with the increase in the number of sewage treatment plants and the improvement of sewage treatment technology, China's sewage treatment rate will further climb. It is expected that the sewage treatment rate in Chinese cities will increase from about 98% in 2022 to about 99% in 2026, and the sewage treatment rate in Chinese county towns will also increase from about 97% in 2022 to about 99% in 2026.
Source: Analysis by Frost & Sullivan
2The water treatment industry is transforming towards resource utilization
Whether in terms of international advanced experience or domestic practical situations, resource recovery is an important trend in the field of water treatment.However, due to the scarcity of water resources in our country and the relatively low level of wastewater resource utilization, the research and development of related technologies and facilities as well as their construction urgently need to be implemented. According to statistical data from 2019, the total national water consumption was 602.1 billion cubic meters, a year-on-year increase of 0.09%.Among them, the surface water supply is 498.2 billion cubic meters, the groundwater supply is 93.4 billion cubic meters, and the other water sources provide 10.4 billion cubic meters. At present, surface water remains the main source of water supply in China. According to internationally recognized standards, China is in a state of mild water shortage, that is,per capita water resourcesLess than 3,000 cubic meters.
With the continuous development of the water treatment industry, resource utilization has become one of its important trends.Since 2020, China has been intensively releasing policies on sewage resource utilization. By 2025, the target for reclaimed water utilization rate is to reach 35%. Against this backdrop, the investment space for sewage resource utilization during the '14th Five-Year Plan' period is expected to be nearly one hundred billion. Considering water resource protection, water ecological restoration, water pollution prevention and control, and the sustainable development of future economic society, the utilization of sewage resources may become a national strategy, having a significant impact on the water services and environmental protection industries, and may even give rise to new sub-fields.
The construction projects for sewage collection and resource utilization facilities, regional reclaimed water recycling projects, industrial wastewater recycling projects, comprehensive utilization of agricultural and rural sewage projects, pilot projects for near-zero sewage discharge through technological innovation, and key sewage resource utilization projects that comprehensively carry out pilot demonstrations for sewage resource utilization will further accelerate the development momentum of the municipal, industrial, and rural sewage treatment and resource utilization markets.
3Decentralized sewage treatment
The decentralized wastewater treatment service market refers to the manufacturing, construction, and operation of decentralized wastewater treatment facilities. These facilities are typically located at dispersed sewage discharge points where it is difficult and uneconomical to introduce sewer networks and build centralized wastewater treatment plants. Compared with centralized wastewater treatment plants, decentralized wastewater treatment equipment not only requires less investment and construction work but also occupies a smaller area.Compared with centralized sewage treatment, decentralized sewage treatment has obvious advantages in terms of initial investment, operating costs, floor space, site selection requirements, management methods, flexibility, etc.
Decentralized sewage treatment equipment is widely used in areas with dispersed populations and low density.Currently, decentralized sewage treatment equipment is mainly used in rural areas, as well as in a few urban areas where centralized sewage treatment plants have not been introduced and in the treatment of industrial wastewater. Other application scenarios for decentralized sewage treatment equipment include high-speed service areas, scenic spots, schools, etc.
Source: Analysis by Frost & Sullivan
One of the most obvious advantages of decentralized sewage treatment schemes is their strong flexibility, with relatively lower construction and operating costs.For areas such as rural regions where residential units are more dispersed, decentralized wastewater treatment solutions can achieve the same treatment effect as centralized systems with less investment, cost, land, and human resources, and are superior to centralized systems. The decentralized wastewater treatment system is more flexible in design and can be customized according to customer requirements in terms of site, materials, cost, appearance, discharge water quality, etc.
Driven by environmental protection support policies, the decentralized sewage treatment service market in China has grown rapidly in the past few years.The market scale of decentralized sewage treatment services in China increased from 47 billion yuan in 2017 to 130 billion yuan in 2021, with a compound annual growth rate of about 30%. Considering the relatively low sewage treatment rate in rural areas, the decentralized sewage treatment service market is expected to continue growing rapidly in the coming years. It is projected to grow from about 150 billion yuan in 2022 to 240 billion yuan in 2026, with a compound annual growth rate of about 10%.
Source: Analysis by Frost & Sullivan
Dispersed wastewater treatment equipment suppliers mainly sell their equipment to construction contractors who own projects for the installation of dispersed wastewater treatment facilities.asPPP modelWith the promotion of PPP projects, the development of decentralized sewage treatment equipment has been rapid, generating a large demand for such equipment. The market scale of decentralized sewage treatment equipment in China increased from about 1 billion yuan in 2017 to about 3 billion yuan in 2021, with a compound annual growth rate of about 25%.
In the future, driven by the growing demand for decentralized sewage treatment facilities, the improvement of sewage treatment technology, and favorable policies, the market scale of decentralized sewage treatment equipment in China will further grow from about 3 billion yuan in 2022 to about 5 billion yuan in 2026, with an annual compound growth rate of about 10% during this period.
