The government has hinted that the price of water in China may go up in the near future, according to a report in Global Business & Finance.

The National Development and Reform Commission, the Ministry of Housing and the Ministry of Water Resources warned that the price of water supplies may rise following a series of buyouts of water utilities by foreign companies.

Several high premium purchases of water companies in 2007 indicated that foreign investment had begun to enter Chinese water supply market.

Foreign capital enters Chinese water market

Veolia Water signs contract with Tianjin Teda Investment to set up Tianjin Teda Veolia Water in 2007.

In 2007, Veolia Water purchased a 45 percent share of the Lanzhou Water Supply Company for 1.71 billion yuan (US$249 billion) marking the beginning of an invasion of foreign capital into the Chinese water market. Other overseas water giants followed, including Sino French Water Development Company Limited. Foreign companies are willing to pay up to three times net asset value to purchase Chinese water companies.

Such high prices seem irresistible to local governments and enterprises. But sellers may not be thinking very far ahead. 

Foreign water companies are targeting China because the country's water market is still relatively undeveloped. Water consumption normally accounts for 4 percent of personal income abroad, while in China the figure is only 1.2 percent. In addition, China's large population and rapid urbanization promise a huge and growing market.

Currently water companies in China are public utilities, and government policy has been to keep prices low. But allowing private companies to operate water supplies indicates that prices will be allowed to rise in the near future. This in turn will be a signal for foreign capital to increase its investment in the Chinese water market.